<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 1999 0-25596
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-5249
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 263-8000
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock $.0025 par value 24,324,937
(Title of class) (Shares outstanding at
April 16, 1999)
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three and Nine Months Ended March 31, 1999 and 1998
--------------------------------------------------------------------------
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2 - Management's Discussion And Analysis of
Financial Condition And Results of Operations 10-17
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk 17
Part II OTHER INFORMATION 18
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 10.46 - Asset purchase agreement between Shop at
Home and Paxon Communications
Exhibit 27 - Financial Data Schedule (For SEC use only)
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, June 30,
1999 1998
--------------------- -------------------
<S> <C> <C>
(Unaudited)
Cash $8,821 $21,224
Accounts receivable - net 9,423 3,830
Inventories - net 5,765 4,332
Prepaid expenses 1,323 404
Deferred tax assets 1,057 990
--------------------- -------------------
Total current assets 26,389 30,780
Related party - note receivable, net of discounts of $104 and
$134, respectively 681 660
Property & equipment - net 27,923 20,557
FCC and NFL Licenses - net 83,008 84,831
Goodwill, net 2,408 2,532
Other assets 6,027 4,410
===================== ===================
Total assets $146,436 $143,770
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $23,721 $18,784
Current portion - capital leases and long term debt - 161
Deferred revenue 183 267
--------------------- -------------------
Total current liabilities 23,904 19,212
Long-term debt 75,000 75,254
Deferred income taxes 945 3,551
Redeemable Preferred Stock:
Redeemable at $10 per share
$10 par value, 1,000,000 shares authorized,
106,123 and 137,943 shares issued and outstanding at
March 31, 1999 and June 30, 1998, respectively 1,075 1,393
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized, 24,324,937 and 23,313,191 shares issued at March
31, 1999
and June 30, 1998, respectively 61 58
Additional paid in capital 52,610 49,093
Accumulated deficit (7,159) (4,791)
--------------------- -------------------
Total liabilities and stockholders' equity $146,436 $143,770
===================== ===================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------------- ----------------------------------------
1999 1998 1999 1998
----------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues $37,098 $26,163 $110,442 $70,457
Operating expenses:
Cost of goods sold (excluding items
listed below) 22,866 15,622 65,869 40,866
Salaries and wages 2,674 1,881 8,120 5,161
Transponder and cable charges 6,760 4,461 19,370 12,554
Other general and administrative
expenses 3,685 3,133 10,489 7,920
Depreciation and amortization 1,327 413 3,609 1,193
Move-related expenses 197 - 873 -
----------------- ------------------ -------------------- ------------------
Total operating expenses 37,509 25,510 108,330 67,694
----------------- ------------------ -------------------- ------------------
Operating income (loss) (411) 653 2,112 2,763
Other income 102 1,044 676 1,214
Interest expense-Net (2,388) (286) (6,590) (741)
----------------- ------------------ -------------------- ------------------
Income (loss) before income
taxes (2,697) 1,411 (3,802) 3,236
Income tax expense (benefit) (987) 536 (1,445) 1,238
----------------- ------------------ -------------------- ------------------
Net income (loss) $(1,710) $875 $(2,357) $1,998
================= ================== ==================== ==================
Basic earnings (loss) per share $(.07) $.07 $(.10) $.17
================= ================== ==================== ==================
Diluted earnings (loss) per share $(.07) $.06 $(.10) $.14
================= ================== ==================== ==================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998
(Thousands of Dollars)
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
------------------ -------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(2,357) $1,998
Gain on sale of contract rights - (900)
Non-cash expenses included in net income:
Depreciation and amortization 3,609 1,193
Deferred income taxes (1,787) 869
Deferred interest expense (22) -
Provision for bad debt - 355
Provision for inventory obsolescence 70 (351)
Changes in current and non-current items:
Accounts receivable (5,593) (4,257)
Inventories (1,503) (1,718)
Prepaid expenses and other assets (1,536) 183
Accounts payable and accrued expenses 4,930 3,380
Deferred revenue (84) 194
================== ===================
Net cash (used) provided by operations (4,273) 946
================== ===================
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable-related party - (800)
Purchase of equipment (1,724) (488)
Purchase of assets (6,339) (6,325)
Purchase of licenses - (71,500)
Other assets (1,925) (5,546)
Proceeds from sale of contractual right - 900
================== ===================
Net cash used in investing activities (9,988) (83,759)
================== ===================
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants 2,476 669
Common stock issued - 40,250
Payment of stock issuance costs - (2,963)
Purchase and retirement of common stock (203) -
Repayments of debt and capitalized leases (415) (11,519)
Additional long-term debt - 78,000
================== ===================
Net cash provided by financing activities 1,858 104,437
================== ===================
NET INCREASE/(DECREASE) IN CASH (12,403) 21,624
Cash beginning of period 21,224 5,078
================== ===================
Cash end of period $8,821 $26,702
================== ===================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Nine Months Ended March 31, 1999 and 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------- --------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for loan guarantee $ 40 $ -
========================== ==========================
Conversion of note payable into shares of common stock $ - $ 1,190
========================== ==========================
Conversion of preferred stock into shares of
common stock $ 318 $ -
========================== ==========================
Income tax benefit from exercise of stock options $ 886 $ -
========================== ==========================
Assets acquired through capital lease $ - $ 149
========================== ==========================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1999 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All dollar values have been expressed in thousands (000s) unless otherwise
noted except for per share data. The financial information included herein is
unaudited for the quarter and nine months ended March 31, 1999; however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial condition and results of operations of the interim
periods. The condensed consolidated balance sheet data for the fiscal year
ended June 30, 1998 was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in the Shop At Home, Inc. and Subsidiaries Annual Report
on Form 10-K/A for the fiscal year ended June 30, 1998.
Certain amounts in the prior periods' condensed consolidated financial
statements have been reclassified for comparative purposes to conform to the
current year presentation.
NOTE 2 - INVENTORIES
The components of inventories at March 31, 1999 and June 30, 1998 are as
follows:
March 31, June 30,
1999 1998
-------------------- -------------------
(Thousands of Dollars)
Work in process $246 $152
Finished goods 5,610 4,201
-------------------- -------------------
5,856 4,353
Valuation allowance (91) (21)
-------------------- -------------------
Total $5,765 $4,332
==================== ===================
NOTE 3 - STOCK TRANSACTION
The Company's Board of Directors authorized management to repurchase in the
open market, at its discretion, up to two million shares of the Company's
common stock. Shares purchased under this program have been retired in
accordance with the terms of the Indenture. The Company repurchased a total of
90,300 shares at a cost of $203 by the end of December 1998, with no
additional purchases made since then.
NOTE 4 - NET EARNINGS/(LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding. Diluted
earnings (loss) per share is computed by dividing the net income (loss) by the
weighted average number of shares of common stock and assumed conversions of
dilutive securities and potential common shares outstanding during the
respective periods. Dilutive securities are represented by options, warrants,
redeemable preferred stock and convertible debt outstanding and are included in
the computation only for periods in which net income was generated.
The following table sets forth for the periods indicated the calculation of net
earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $(1,710) $875 $(2,357) $1,998
Preferred stock dividends (4) (4) (15) (15)
----------------- ----------------- ---------------- ----------------
Numerator for basic earnings per share-
income (loss) available to common
stockholders (1,714) 871 (2,372) 1,983
Effect of dilutive securities:
Preferred stock dividends 4 4 15 15
Interest on convertible debt - - - 50
Numerator for diluted earnings per share-
Income (loss) available to common
----------------- ----------------- ---------------- ----------------
Stockholders after assumed conversions $(1,710) $875 $(2,357) $2,048
================= ================= ================ ================
Denominator: (000s)
Denominator for basic earnings per share-
Weighted-average shares 23,997 12,227 23,567 11,593
----------------- ----------------- ---------------- ----------------
Effect of dilutive securities:
a) Stock options and warrants - 2,659 - 2,854
b) Convertible preferred stock - 138 - 138
Convertible debt - - - 158
----------------- ----------------- ---------------- ----------------
Dilutive potential common shares - 2,797 - 3,150
----------------- ----------------- ---------------- ----------------
Denominator for diluted earnings per share
Adjusted weighted-average shares and
assumed conversions 23,997 15,024 23,567 14,743
================= ================= ================ ================
Basic earnings (loss) per share $(.07) $.07 $(.10) $.17
================= ================= ================ ================
Diluted earnings (loss) per share $(.07) $.06 $(.10) $.14
================= ================= ================ ================
</TABLE>
Although these amounts are excluded from the computation in loss years because
their inclusion would be anti-dilutive, they are shown here for informational
and comparative purposes only.
<TABLE>
<S> <C> <C> <C> <C>
a) Employee stock options and warrants 3,961 - 4,175 -
b) Convertible preferred stock 127 - 137 -
</TABLE>
NOTE 5- MANAGEMENT STOCK OPTIONS OUTSTANDING
At March 31, 1999, options to purchase up to 4.2 million shares of common
stock, including 145,000 shares issued to outside directors, at prices ranging
from $1.00 to $13.00 per share were outstanding to employees and members of
management. Options vest annually over a period of up to five years. The
options expire the earlier of five years from date of vesting or 30 days
after termination of employment.
NOTE 6- CONTINGENCIES AND COMMITMENTS
Upon the acquisition of WMFP by a subsidiary of the Company in February 1995,
management concluded that the Company did not have nexus in the State of
Massachusetts for sales and use tax purposes. To support this position, the
Company requested a ruling from the State Department of Revenue (DOR). In
January 1999, the DOR ruled that the Company did have nexus and was obligated
to collect and remit the use tax on all sales to Massachusetts customers.
As a result, in January 1999, the Company remitted approximately $1.4 million
which included tax collected and recorded on the books of $1.2 million and
accrued interest of $191 thousand. There is a possibility that the Department
of Revenue could impose a penalty. If a penalty is imposed, the Company intends
to pay it under protest and challenge the ruling in its entirety. No
amount has been assessed as a potential penalty as of March 31, 1999.
In February 1999, the Company made a $1 million non-refundable payment with
respect to its pending acquisition of station WBPT in Bridgeport, Connecticut
as part of a total purchase price of $20 million. The Company is obligated to
close the acquisition by early June 1999.
The Company has entered into agreements with computer software and hardware
vendors to replace its core systems and to launch a new website,
collectibles.com. The Company estimates that these agreements will require
payments of approximately $13 million.
NOTE 7 - SUBSEQUENT EVENT - AGREEMENT WITH YAHOO, INC.
On April 28, 1999, the Company entered into an agreement with Yahoo!, Inc., a
leading internet portal, under which the two companies will cross-promote
various products and services. The agreement calls for the Company to provide
Yahoo! with auction products online as well as television time for Yahoo!
merchandise.
In return, Yahoo! has agreed to provide the Network with online banner
advertising and other promotional services, including co-sponsored events.
The agreement is for a term of one year and will automatically be extended for
an additional six month period unless one of the parties chooses to terminate
the agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations of
the Company is qualified in its entirety by the more detailed information and
financial data, including the Consolidated Financial Statements and Notes
thereto, included elsewhere herein.
General
The Company, founded in 1986, is a nationally televised home shopping retailer
offering high-quality merchandise, at prices competitive with traditional
retailers and catalog companies, as well as unique merchandise and memorabilia
that may be unavailable or have limited availability elsewhere. The Company
derives revenues primarily from the sale of merchandise marketed through its
home shopping programming carried by: television stations owned by the Company;
by television stations with whom the Company has entered into agreements to
purchase broadcast time; by the carriage of those television broadcasts on
cable television systems under the "must-carry" or retransmission consent
provisions of federal law; by the direct carriage on cable television
systems under agreements with cable system operators; and by the direct
reception of the Company satellite transmission by individuals who own
satellite downlink equipment. Beginning in 1997, another source of revenues
has been the Company's wholly-owned subsidiary, Collector's Edge of Tennessee,
Inc., ("Collector's Edge"). Collector's Edge is engaged in the business of
wholesale sales of sports trading cards under license with National Football
League Properties, Inc., and National Football Players, Incorporated.
Collector's Edge was organized in February 1997 and acquired the assets of
an existing company that had been engaged in the same business for
approximately four years. The Company also receives additional revenues from
the sale of broadcast time on its owned television stations for the broadcast
of infomercials.
As of March 31, 1999, the Company's programming was viewable during all or a
part of each day by approximately 67.0 million cable households, of which
approximately 8.2 million cable households receive the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 58.8
million cable households receive it on a part-time basis. Households may be
counted more than once if they receive signals from multiple sources, i.e.
cable and broadcast in the same market. In order to measure its performance
in a manner that reflects both the growth of the Company and the nature of its
access to part-time cable households, the Company uses a cable household
full-time equivalent method to measure the reach of the Company's programming
which accounts for both the quantity and quality of time available to the
Company. To derive this full-time equivalent cable household base ("FTE Cable
Household"), the Company has developed a methodology to assign a relative
value of each daypart to the Company's overall sales, which is based on sales
in markets where the programming is carried on a full-time basis. Each daypart
has a value based on historical sales. The Company believes that changes in
the number of FTE Cable Households provide a consistent measure of the growth
of the Company and applies this methodology to all affiliates. Accordingly,
the Company uses the revenue per average FTE Cable Households as a measure of
pricing new affiliate contracts and estimating their anticipated revenue
performance.
The Company owns and operates five UHF television stations located in the San
Francisco, Boston, Houston, Cleveland and Raleigh markets, four of which are
among the top 13 television markets in the United States.
Principal elements in the Company's cost structure are (i) cost of goods sold,
(ii) transponder and cable costs, and (iii) salaries and wages. The Company's
cost of goods sold is a direct result of both the product mix and the Company's
ability to negotiate favorable prices from its vendors. Transponder and cable
costs include expenses related to carriage under affiliation and transponder
agreements. Carriage costs have increased on an absolute basis in recent years.
The Company's increased carriage costs are primarily attributable to the
initiation of the Company's programming in new markets. FTE Cable Households
have grown from 12.7 million at March 31, 1998, to 16.6 million at March 31,
1999. The Company expects this trend will continue as the Company enters new
markets and expands the number of hours in its part-time markets.
Overview of Results of Operations
The following table sets forth for the periods indicated the percentage
relationship to net revenues of certain items included in the Company's
Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1999 1998 1999 1998
------------------ ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold (excluding items
listed below) 61.6 59.7 59.6 58.0
Salaries & wages 7.2 7.2 7.4 7.3
Transponder & cable 18.2 17.1 17.5 17.8
Other general operating and
administrative expense 9.9 12.0 9.4 11.2
Depreciation & amortization 3.6 1.6 3.3 1.7
Move-related expenses .5 - .8 -
Other income .3 4.0 .6 1.7
Interest expense 6.4 1.1 6.0 1.1
Net income (loss) before income
Taxes (7.3) 5.4 (3.4) 4.6
Income tax expense (benefit) (2.7) 2.0 (1.3) 1.8
Net income (loss) (4.6) 3.3 (2.1) 2.8
</TABLE>
Three months ended March 31, 1999 vs. three months ended March 31, 1998
Net Revenues. The Company's revenues for the quarter ended March 31,
1999, were $37.1 million, an increase of 41.8% from revenues of $26.2 million
for the same quarter in 1998. The core business of the shopping network
accounted for 94.2% of revenues on an average of 16.1 million FTE Cable
Households in the quarter ended March 31, 1999 compared to an average of 11.9
million FTE Cable Households in the 1998 quarter, representing a 35.3% increase
in FTE cable households. The remaining 5.8% of 1999 revenues resulted from
approximately $2.1 million in revenues from Collector's Edge, as compared to
$1.1 million in revenues or 4.2% for the same quarter in 1998.
In addition, the 1999 period includes infomercial revenue of $631 thousand
compared to $358 thousand in 1998 representing a 76.2% increase. This increase
is due primarily to the addition of the Cleveland, San Francisco and
Raleigh-Durham stations acquired at the end of March 1998.
Cost of Goods Sold. Cost of goods sold represents the purchase price
of merchandise and inbound freight. For the quarter ended March 31, 1999, the
cost of goods sold increased to 61.6% from 59.7% in the comparable 1998 period.
This increase is mainly due to a higher percentage of sales attributable
to lower-margin product categories, primarily electronics and coins which
collectively represented approximately 29% of revenues for the three months
ended March 31, 1999 compared to 20% of revenues for the 1998 period.
Salaries and Wages. Salaries and wages for the quarter ended March 31,
1999 were $2.7 million, an increase of 42.2% over the comparable 1998 quarter.
Salaries and wages as a percent of revenues, however, remained stable at 7.2%
for both the 1999 and 1998 periods after giving effect to $304 thousand or .8%
of salaries capitalized as part of the installation of new computer software
systems.
Transponder and Cable. Transponder and cable costs for the quarter
ended March 31, 1999 were $6.8 million, an increase of $2.3 million or 51.5%
over the comparable 1998 quarter. During the same period full-time equivalent
households grew 35.3%. The cable carriage cost component of this expense
category increased as a percentage of revenues to 17.0% from 15.6%. The
additional expense in cable cost is the result of the Company's FTE cable
households average increasing to 16.1 million from 11.8 million for the
quarters ending March 31, 1999 and 1998, respectively. Carriage costs as a
percentage of revenues initially tend to be higher in periods during which the
Company enters a new market. Due to the fixed nature of this expense however,
the ratio of expense to revenues usually decreases as the viewing audience
grows and related revenues increase. As a market matures, if carriage costs do
not migrate down to a cost-effective level, management attempts to renegotiate
the carriage contract and may exit a market if acceptable margins cannot be
obtained.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the quarter ended March 31, 1999 were
$3.7 million, an increase of $.6 million or 17.6% over the comparable 1998
quarter. This increase is primarily due to credit card fees and telephone costs
related to higher revenues, and to utilities, rent and miscellaneous expenses,
which rose primarily due to the acquisition of television stations and the move
to the new headquarters facility in Nashville. With the revenue increase of
42%, this expense category, which is largely comprised of fixed expenses,
expressed as a percentage of revenues, has decreased to 9.9% in 1999 from 12.0%
in 1998.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 1999 were $1.3 million, an increase of $914 thousand or
221.3% over the comparable 1998 quarter. The major components of this increase
are $547 thousand associated with the amortization of license costs and
depreciation for the three television stations acquired at the end of March
1998 and $203 thousand additional depreciation on the Company's new
headquarters.
Move-Related Expenses. Move-related expenses were $197 thousand in
the quarter ended March 31, 1999 and were primarily related to employee
relocation.
Interest. Interest expense for the quarter ended March 31, 1999 was
$2.4 million, an increase of $2.1 million or 735.0% over the comparable 1998
quarter. This increase is due to the issuance of $75 million 11% Senior Secured
Notes due 2005, which the Company successfully issued in March 1998.
Other Income. Other income decreased to $102 for the quarter ended
March 31, 1999, from $1.0 million for the same period in 1998, representing a
90.2% decrease. The decrease was primarily due to a one-time $900 thousand gain
in 1998 on the sale of the Company's contractual right to acquire a Knoxville
station.
Nine months ended March 31, 1999 vs. nine months ended March 31, 1998.
Net Revenues. The Company's net revenues for the nine months ended
March 31, 1999 were $110.4 million, an increase of 56.8% over net revenues of
$70.5 million for the same period last year. The core business of the shopping
network accounted for 94.4% of net revenues based on an average of 16.1 million
FTE Cable Households in the nine months ended March 31, 1999 compared to an
average of 10.1 million FTE Cable Households in the same period in 1998. During
the nine months ended March 31, 1999, the Company generated revenues per FTE
Cable Household of approximately $8.63 compared with approximately $8.66 per FTE
Cable Household for the same period of the prior year. The major reason for the
decrease in revenues per household is due to the addition of an average of 6.0
million FTEs during the nine months ended March 1999 compared to the same period
in 1998, representing a 59% increase. These additional households have not yet
reached their full revenue potential as mature households. The remaining 5.6% of
1999 net revenues resulted from approximately $4.5 million from Collector's
Edge.
Also included in net revenues was infomercial income, generated by its
broadcast operations in Boston, Houston, Cleveland, San Francisco and
Raleigh-Durham, of $1.3 million compared to $922 thousand in the comparable 1998
nine month period, representing a 41.0% increase. The Company also sold
approximately $451 thousand of broadcast time to certain vendors during the 1998
period. The Company did not continue this practice in the 1999 period.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the nine month period ended March 31, 1999,
the cost of goods sold increased to 59.6% from 58.0% in the comparable 1998
period. This increase is mainly due to a higher percentage of sales attributable
to lower-margin product categories, primarily electronics and coins which
collectively represented approximately 23.7% of revenues for the nine months
ended March 31, 1999 compared to 26.0% of revenues for the 1998 period.
Salaries and Wages. Salaries and wages for the nine months ended March
31, 1999 were $8.1 million, an increase of 57.3% compared to the same period in
1998. Salaries and wages as a percent of revenues remained consistent in both
years reflecting the addition of new personnel commensurate with the increase in
revenues.
Transponder and Cable. Transponder and cable costs for the nine months
ended March 31, 1999 were $19.4 million, an increase of $6.8 million or 54.3%
compared to the same period in 1998. The cable component of this expense
category remained constant at 16.3% for both periods. Although the percentage
remained constant, the 1999 period reflects the reduction of cable costs of
stations KCNS, San Francisco and WRAY, Raleigh-Durham which were acquired in
March 1998 and therefore not included in the 1999 period. The additional expense
in cable costs is the result of the Company's FTE average increasing to 16.1
million from 10.1 million for the nine month periods ending March 31, 1999 and
1998, respectively. As a percentage of revenues, the costs initially tend to be
higher in periods during which the Company enters a new market and/or adds a
significant number of new households. Due to the fixed nature of this expense,
however, its relationship usually decreases as revenues develop and the audience
matures. The Company's ultimate goal is for carriage costs to stabilize in
mature markets at approximately 15% of revenues. As a market matures, if
carriage costs do not move down to cost-effective levels, management generally
attempts to renegotiate the carriage contract.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the nine months ended March 31, 1999
were $10.5 million, an increase of $2.6 million or 32.3% compared to the nine
months ended March 31, 1998. As a percentage of revenues, this constituted a
decrease to 9.% in 1999 from 11.2% in 1998 and is attributable to a number of
factors, including legal and consulting expenses, operating supplies and
advertising.
Depreciation and Amortization. Depreciation and amortization for the
nine months ended March 31, 1999 was $3.6 million, an increase of $2.4 million
or 202.5% compared to the nine months ended March 31, 1998. The largest part of
this increase was the $1.6 million of additional license cost amortization and
depreciation for the three new television stations acquired in March 1998 and
$417 thousand of additional depreciation of the Company's new facility in
Nashville.
Move-Related Expenses. Move-related expenses were $873 thousand in the
nine months ended March 31, 1999. These expenses primarily relate to employee
relocation, rental of temporary facilities, the grand opening, of the Company's
Nashville headquarters and employee stay bonuses associated with the related
relocation.
Interest. Interest expense for the nine months ended March 31, 1999 was
$6.6 million, an increase of $5.8 million or 789.3% compared to the nine months
ended March 31, 1998. The increase was due to the issuance of $75 million 11%
Senior Secured Notes due 2005, which the Company successfully issued in March
1998.
Other Income. Other income decreased to $676 thousand for the nine
months ended March 31, 1999 from $1.2 million for the comparable 1998 period
representing a 44.3% decrease. The major portion of this decrease is the result
of the inclusion of a $900 thousand gain on the sale of the Company's Knoxville
station.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical capital sources have included an initial public
offering of Common Stock, proceeds from the private and public placement of
Common Stock, proceeds from the exercise of warrants, bank lines of credit,
public placement of debt, funds from operations and long-term debt incurred in
connection with acquisitions.
As of March 31, 1999, the Company had current assets of $26.4 million compared
to current liabilities of $24.0 million, resulting in working capital of $2.4
million. The Company's positive working capital position is primarily
attributable to the infusion of excess cash from the public offering completed
in March 1998, which will continue to be used to fund capital expenditures and
general working capital requirements.
During the nine months ended March 31, 1999, the Company used approximately $5.6
million to fund accounts receivable, approximately $1.5 million for inventory
$919 for prepaid items, and approximately $1.9 million comprised of the $1
million deposit for the pending acquisition of station WBPT, Bridgeport,
Connecticut and approximately $700 thousand for the combination of prepaid
royalties and various athletics promotional expenses for future card releases.
These expenditures were offset in part by almost $5.0 million in additional
payables. In addition, the Company spent approximately $8.1 million for
equipment and repaid capital leases of $415 thousand. These expenditures
included upgrades to the equipment at the San Francisco and Raleigh stations to
increase the power and quality of these broadcast signals; acquisition,
renovation and equipping of its new Nashville facilities; and normal recurring
capital expenditures. These capital expenditures were funded from the proceeds
of the public stock and public notes offerings completed in March 1998.
Upon the acquisition of WMFP by a subsidiary of the Company in February 1995,
management concluded that the Company did not have nexus in the State of
Massachusetts for sales and use tax purposes. To firm up this position, the
Company requested a ruling from the State Department of Revenue (DOR). In
January 1999, the DOR ruled that the Company did have nexus and was obligated to
collect and remit the use tax on all sales to Massachusetts customers. As a
result, the Company remitted approximately $1.4 million which included tax
collected and recorded on the books as of March 31, 1999 of $1.2 million and
accrued interest of $191. There is a possibility that the Department of Revenue
could impose a penalty. If a penalty is imposed, the Company intends to pay it
under protest and challenge the ruling in its entirety. No amount has been
assessed for a potential penalty as of March 31, 1999.
In order to fund its acquisition of station WBPT in Bridgeport, Connecticut, the
Company has obtained a bank commitment for a senior loan of $20 million in
additional funds needed to close on this station in early June 1999.
The Company is highly leveraged and has limited additional debt capacity. As a
result, the Company is evaluating placement of equity, privately and/or publicly
to fund the implementation and development of its website "collectibles.com",
the Company's systems conversion and other potential station acquisitions. If
the Company is unable to obtain capital from external sources, the
aforementioned growth and improvements may be delayed or abandoned.
Year 2000
The Company intends to achieve compliance through systems replacement and
believes existing capital budgets are adequate for any remaining hardware and
software replacements.
The Company is supported by redundant IBM RS6000s, each of which interfaces
directly with a Year 2000 (Y2K) compliant backup disk system. The new version of
the AIX operating system is also compliant. The Company's relocation to
Nashville, Tennessee, helped compliance efforts by requiring the replacement of
key network equipment. Since the move, the Company upgraded approximately 90% of
its LAN application servers and computer systems to Windows NT systems and is
currently testing the Y2K compliance "patch" to Windows NT. Additionally, the
PBX, voice response system and Aspect Callcenter software and server were all
upgraded and are compliant. There are still outstanding Y2K issues with the
Company's web server and a software program utilized by Human Resources.
The Company has established a Year 2000 committee and part of its focus will be
on businesses external to Shop At Home and on systems and service suppliers
which are electronically linked to the Company's business units. The Company has
provided many major vendors with an EDI software package which is Y2K compliant
and the Company is not presently aware of any material problems in the Year 2000
compliance plans of its major vendors or service providers; however, the Company
is in the process of further discovery and analysis of its vendors and other
possible non-compliant suppliers.
Shop at Home has spent approximately $2.1 million on new computer hardware and
systems to date and is replacing most of the primary computer systems with
Oracle software as part of Y2K compliance and to build the infrastructure
necessary for growth. The total cost of system replacements (both hardware and
software) will approximate $10 million (in addition to what has already been
spent).
The following is the time table for Shop At Home's Year 2000 compliance effort:
Apr 1999 All internal (hardware and software) and external (supplier)
factors identified. 90% completed at end of April
1999.
May Mailings to external suppliers scheduled to go out.
Jun Internal problems addressed and corrected and
questionnaires to external suppliers evaluated. Begin
testing internal systems.
Jul Continue testing internal systems. Begin contingency planning.
Aug Complete contingency planning. Begin contingency testing.
Aug Internal Oracle implementation with new hardware and software
complete.
Sep Continue contingency testing.
Oct 1999 Complete all evaluation and testing. Review all portions o
Y2K documentation.
The "worst case" scenario would be for the Company's critical vendors to have
Y2000 problems. Such vendors would be related to:
a) bankcard processors. The Company believes there are several
providers for this service as alternatives.
b) long distance telephone service providers. Similarly, in addition to
the two providers used by the Company currently, the Company
believes there are alternative providers.
c) the satellite transponder provider. The contractor is bound to
provide this service. If there were no alternative then the
Company's signal would cease to be transmitted across the country.
The Company is contacting these vendors to verify their claims that they are
Y2000 compliant. Shop At Home's contingency plans include seeking alternatives
to vendors that are not compliant. Efforts, if necessary, will be made to find
replacement sources of all primary servicers that cannot provide adequate
assurance of compliance.
Despite the concern surrounding discussions of Year 2000, the Company does not
anticipate major interruptions. The development and testing of a contingency
plan will help to ensure this. The Company believes its Y2K program is adequate
to detect in advance compliance issues, and the necessary resources to remedy
them are available. The Y2K problem has many aspects and potential consequences
however, some of which are not reasonably foreseeable. There is no assurance
that unforeseen consequences, will not occur.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company had no items that
would be classified as other comprehensive income in the quarter ended March 31,
1999. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement will
become effective for the Company's June 30, 1999 fiscal year financial
statements and will impact interim reporting beginning with the quarter ending
September 30, 1999. The Company is evaluating SFAS 131 to determine the impact,
if any, on its reporting and disclosure requirement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial position,
results of operations, or cash flows of the Company due to adverse changes in
financial market prices, including interest rate risk, foreign currency exchange
rate risk, commodity price risk, and other relevant market rate or price risks.
The Company is exposed to some market risk through interest rates, related to
its investment of its current cash and cash equivalents. These funds are
generally invested in highly liquid debt instruments with short term maturities.
As such instruments mature and the funds are re-invested, the Company is exposed
to changes in market interest rates. This risk is not considered material and
the Company manages such risk by continuing to evaluate the best investments
rates available for short-term high quality investments.
The Company is not currently exposed to market risk through changes in interest
rate on its long term indebtedness, because such debt is at a fixed rate.
The Company obtains, on consignment, the vast majority of products which it
sells through its programming, and the prices of such products are subject to
changes in market conditions. These products are purchased domestically, and,
consequently, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial instruments or
derivative commodity instruments.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes In Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
None
Item 6. Reports On Form 8-K.
8-K filed on February 3, 1999 disclosed that James Bauchiero
would be leaving his position as Chief Financial Officer to
pursue other opportunities.
Exhibits
Exhibit 10.46 Asset purchase agreement between Shop at Home
and Paxson Communications dated February 26,
1999
Exhibit 27 Financial Data Schedule (For SEC use only)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/S/ Kent E. Lillie
Kent E. Lillie, President
Date:
/S/ Arthur Tek
Executive VP & Chief Financial Officer
Date:_____________________________
<PAGE>
Exhibit 10.46. Asset Purchase Agreement dated February 26, 1999, between Shop at
Home, Inc., and Paxson Communications of New York-43, Inc., and Paxson New York
License, Inc..
ASSET PURCHASE AGREEMENT
BY AND AMONG
PAXSON COMMUNICATIONS OF NEW YORK-43, INC.,
PAXSON NEW YORK LICENSE, INC.,
AND
SHOP AT HOME, INC.
* * *
FEBRUARY 26, 1999
================================================================================
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS...........................................................................................1
"Accounts Receivable"...........................................................................1
"Assets"........................................................................................2
"Assumed Contracts".............................................................................2
"Closing".......................................................................................2
"Closing Date"..................................................................................2
"Code"..........................................................................................2
"Consents"......................................................................................2
"Contracts".....................................................................................2
"Escrow Agent"..................................................................................2
"Escrow Agreement"..............................................................................2
"Excluded Assets"...............................................................................2
"FCC"...........................................................................................2
"FCC Consent"...................................................................................2
"FCC Licenses"..................................................................................3
"Final Order"...................................................................................3
"GAAP"..........................................................................................3
"Intangibles"...................................................................................3
"Intermediary"..................................................................................3
"Licenses"......................................................................................3
"Material Adverse Effect".......................................................................3
"Permitted Liens"...............................................................................3
"Purchase Price"................................................................................4
"Real Property".................................................................................4
"Services Agreement"............................................................................4
"Tangible Personal Property"....................................................................4
"Time Brokerage Agreement"......................................................................4
SECTION 2. PURCHASE AND SALE OF ASSETS...........................................................................4
2.1 Agreement to Sell and Buy..............................................................4
2.2 Excluded Assets........................................................................5
2.3 Purchase Price.........................................................................6
2.4 Payment of Purchase Price.............................................................11
2.5 Assumption of Liabilities and Obligations.............................................11
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................12
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3.1 Organization, Standing, and Authority.................................................12
3.2 Authorization and Binding Obligation..................................................12
3.3 Absence of Conflicting Agreements.....................................................12
3.4 Governmental Licenses.................................................................13
3.5 Title to and Condition of Real Property...............................................13
3.6 Title to and Condition of Tangible Personal Property..................................13
3.7 Assumed Contracts.....................................................................13
3.8 Broker................................................................................14
3.9 Intangibles...........................................................................14
3.10 Insurance.............................................................................14
3.11 Reports...............................................................................14
3.12 Personnel.............................................................................14
3.13 Taxes.................................................................................15
3.14 Claims and Legal Actions..............................................................15
3.15 Environmental Matters.................................................................15
3.16 Compliance with Laws..................................................................16
3.17 Conduct of Business in Ordinary Course................................................16
3.18 Insolvency. ..........................................................................17
3.19 Cable Carriage. ......................................................................17
3.20 Disclaimer............................................................................17
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................17
4.1 Organization, Standing, and Authority.................................................17
4.2 Authorization and Binding Obligation..................................................17
4.3 Absence of Conflicting Agreements.....................................................18
4.4 Broker................................................................................18
4.5 Buyer Qualifications..................................................................18
4.6 Financing.............................................................................18
4.7 Insolvency. .........................................................................18
SECTION 5. OPERATION OF THE STATION PRIOR TO CLOSING............................................................19
5.1 Generally.............................................................................19
5.2 Compensation..........................................................................19
5.3 Contracts.............................................................................19
5.4 Disposition of Assets.................................................................19
5.5 Encumbrances..........................................................................19
5.6 FCC Licenses..........................................................................19
5.7 Access to Information.................................................................19
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5.8 Maintenance of Assets.................................................................20
5.9 Insurance.............................................................................20
5.10 Consents..............................................................................20
5.11 Cable Carriage........................................................................20
5.12 Notice of Proceedings.................................................................20
5.13 Confidential Information..............................................................21
5.14 Performance under Assumed Contracts...................................................21
5.15 Books and Records.....................................................................21
5.16 Notification..........................................................................21
5.17 Compliance with Laws..................................................................21
5.18 Cure..................................................................................21
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS.....................................................................21
6.1 FCC Consent...........................................................................21
6.2 HSR Act...............................................................................22
6.3 Control of the Station................................................................22
6.4 Risk of Loss..........................................................................23
6.5 Confidentiality.......................................................................23
6.6 Cooperation...........................................................................23
6.7 Access to Books and Records...........................................................23
6.8 Appraisal.............................................................................23
6.9 Buyer Conduct.........................................................................23
6.10 Employment Matters....................................................................24
6.11 Time Brokerage Agreement..............................................................24
6.12 Services Agreement....................................................................25
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
AT CLOSING ...........................................................................25
7.1 Conditions to Obligations of Buyer....................................................25
7.2 Conditions to Obligations of Sellers..................................................26
SECTION 8. CLOSING AND CLOSING DELIVERIES.......................................................................27
8.1 Closing...............................................................................27
8.2 Deliveries by Sellers.................................................................27
8.3 Deliveries by Buyer...................................................................28
SECTION 9. TERMINATION..........................................................................................28
9.1 Termination by Sellers................................................................28
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9.2 Termination by Buyer..................................................................29
9.3 Rights on Termination.................................................................30
9.4 Escrow Deposit........................................................................30
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; CERTAIN REMEDIES.................................................................31
10.1 Representations, Warranties and Covenants.............................................31
10.2 Indemnification by Sellers............................................................31
10.3 Indemnification by Buyer..............................................................32
10.4 Limitations...........................................................................32
10.5 Procedure for Indemnification.........................................................32
10.6 Specific Performance..................................................................33
10.7 Attorneys' Fees.......................................................................34
SECTION 11. MISCELLANEOUS.......................................................................................34
11.1 Fees and Expenses.....................................................................34
11.2 Notices...............................................................................34
11.3 Benefit and Binding Effect............................................................35
11.4 Further Assurances....................................................................35
11.5 Governing Law.........................................................................35
11.6 Headings..............................................................................35
11.7 Gender and Number.....................................................................35
11.8 Entire Agreement......................................................................35
11.9 Waiver of Compliance; Consents........................................................36
11.10 Press Release.........................................................................36
11.11 Like-Kind Exchange....................................................................36
11.12 Consent to Jurisdiction...............................................................36
11.13 Bulk Transfer Laws....................................................................37
11.14 Guaranty..............................................................................37
11.15 Counterparts..........................................................................38
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LIST OF SCHEDULES
-----------------
Schedule 2.2 --- Excluded Assets
Schedule 3.3 --- Consents
Schedule 3.4 --- Licenses
Schedule 3.5 --- Real Property
Schedule 3.6 --- Tangible Personal Property
Schedule 3.7 --- Contracts
Schedule 3.9 --- Intangibles
Schedule 3.10 --- Insurance
Schedule 3.12 --- Employee Matters
Schedule 3.14 --- Litigation
Schedule 3.19 --- Cable Carriage
Schedule 4.3 --- Buyer Consents
LIST OF EXHIBITS
----------------
Exhibit A --- Time Brokerage Agreement
Exhibit B --- Services Agreement
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DC03/201910-4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of the 26th day of February,
1999, by and among Paxson Communications of New York-43, Inc., a Florida
corporation ("Paxson-43"), Paxson New York License, Inc., a Florida corporation
("Paxson License"), (Paxson License and Paxson-43 are referred to herein
individually as a "Seller" and collectively as the "Sellers"), Shop at Home,
Inc., a Tennessee corporation ("Buyer"), and Paxson Communications Corporation,
a Delaware corporation ("PCC"), as guarantor.
R E C I T A L S
A. Paxson-43 and Paxson License, indirect, wholly-owned subsidiaries of
PCC, own and operate Television Station WBPT(TV), Bridgeport, Connecticut (the
"Station"), pursuant to authorizations issued by the Federal Communications
Commission (the "FCC") to Paxson License.
B. Sellers desire to sell, and Buyer desires to buy, certain assets
that are used or useful in the business or operations of the Station for the
price and on the terms and conditions set forth in this Agreement.
C. If so elected by Sellers, subject to the terms and conditions of
this Agreement, Sellers may enter into an exchange agreement with an
Intermediary (as defined below) providing that the sale and purchase of some or
all of the assets described herein be effected in a transaction that will
qualify, to the extent permissible, as a "like-kind exchange" under Section 1031
of the Code (as defined below).
A G R E E M E N T S
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, Buyer and Sellers, intending to be bound
legally, agree as follows:
SECTION 1. DEFINITIONS
The following terms, as used in this Agreement, shall have the meanings
set forth in this Section:
"Accounts Receivable" means the rights of Sellers, as of the Closing
Date, to payment for the sale of advertising or programming time on the Station
by Sellers prior to the Closing Date, it
<PAGE> 8
being understood that "Accounts Receivable" shall not include any amounts
payable to Sellers by Buyer pursuant to the Time Brokerage Agreement.
"Assets" means the assets to be sold, transferred, or otherwise
conveyed to Buyer under this Agreement, as specified in Section 2.1.
"Assumed Contracts" means (i) all Contracts listed in SCHEDULE 3.7 and
(ii) all Contracts entered into by Seller between the date of this Agreement and
the Closing Date that Buyer agrees in writing to assume.
"Closing" means the consummation of the purchase and sale of the Assets
pursuant to this Agreement in accordance with the provisions of Section 8.
"Closing Date" means the date on which the Closing occurs, as
determined pursuant to Section 8.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consents" means the consents, permits, or approvals of government
authorities and other third parties necessary to transfer the Assets to Buyer or
otherwise to consummate the transactions contemplated by this Agreement.
"Contracts" means all agreements (including any amendments and other
modifications thereto) to which either Seller is a party and which relate to or
affect the business or operations of the Station, other than the Time Brokerage
Agreement, and (i) which are in effect on the date of this Agreement or (ii)
which are entered into by either Seller between the date of this Agreement and
the Closing Date, but excluding any of the foregoing that are included in the
Excluded Assets.
"Escrow Agent" means First Union National Bank.
"Escrow Agreement" means the Escrow Agreement dated as of February 5,
1999, among Buyer, Sellers and the Escrow Agent.
"Excluded Assets" has the meaning set forth in Section 2.2.
"FCC" means the Federal Communications Commission.
"FCC Consent" means one or more actions of the FCC granting its
consents to the assignments of the FCC Licenses to Buyer as contemplated by this
Agreement.
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<PAGE> 9
"FCC Licenses" means all Licenses issued by the FCC to Paxson License
in connection with the business or operations of the Station.
"Final Order" means an action by the FCC that has not been reversed,
stayed, enjoined, set aside, annulled, or suspended, and with respect to which
no requests are pending for administrative or judicial review, reconsideration,
appeal, or stay, and the time for filing any such requests and the time for the
FCC to set aside the action on its own motion have expired.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, applied on a consistent basis.
"Intangibles" means all copyrights, trademarks, trade names, service
marks, service names, licenses, patents, permits, jingles, proprietary
information, technical information and data, machinery and equipment warranties,
and other similar intangible property rights and interests (and any goodwill
associated with any of the foregoing) applied for, issued to, or owned by either
Seller or under which either Seller is licensed or franchised and which are used
or useful in the business and operations of the Station, together with any
additions thereto between the date of this Agreement and the Closing Date, but
excluding any of the foregoing that are included in the Excluded Assets.
"Intermediary" means an escrow agent or other person or entity serving
as a "qualified intermediary" under United States Treasury Regulations
promulgated pursuant to Section 1031 of the Code.
"Licenses" means all licenses, permits, and other authorizations issued
to either Seller by the FCC, the Federal Aviation Administration (the "FAA"), if
any, or any other federal, state, or local governmental authorities in
connection with the conduct of the business or operations of the Station,
together with, (i) any additions thereto between the date of this Agreement and
the Closing Date and (ii) any and all applications for modification or renewal
thereof.
"Material Adverse Effect" means a material adverse effect on the Assets
taken as a whole or the business of the Station taken as a whole, as currently
conducted; provided that the foregoing shall not include any material adverse
effect arising out of (i) factors affecting the television broadcasting industry
generally, (ii) general national, regional or local economic conditions, (iii)
governmental or legislative laws, rules or regulations, or (iv) actions or
omissions of Buyer or its agents.
"Permitted Liens" means liens for taxes and assessments not yet due and
payable, mechanics' and other statutory liens created in the ordinary course of
business that secure obligations not delinquent, restrictions or rights of
governmental authorities under applicable law
-3-
<PAGE> 10
and liens, restrictions, easements and other encumbrances on the Real Property
that do not materially affect the use or value of the Real Property.
"Purchase Price" means the purchase price specified in Section 2.3.
"Real Property" means Sellers' interests in real property that are set
forth on SCHEDULE 3.5 hereto.
"Services Agreement" means the Services Agreement attached hereto as
EXHIBIT B to be entered into by Paxson-43 and Buyer in accordance with Section
6.12 hereof.
"Tangible Personal Property" means the equipment, tools, leasehold
improvements, office equipment, inventory, spare parts, and other tangible
personal property set forth on SCHEDULE 3.6 hereto, less any retirements or
depositions thereof made in the ordinary course of business or in connection
with the acquisition of equivalent replacement property.
"Time Brokerage Agreement" means the Time Brokerage Agreement attached
hereto as EXHIBIT A to be entered into by Buyer and Sellers in accordance with
Section 6.11 hereof and pursuant to which, among other things, Buyer shall
provide programming for broadcast on the Station.
SECTION 2. PURCHASE AND SALE OF ASSETS
2.1 AGREEMENT TO SELL AND BUY. Subject to the terms and conditions set
forth in this Agreement, Sellers hereby agree to sell, transfer, and deliver to
Buyer on the Closing Date, and Buyer agrees to purchase on the Closing Date, all
of Sellers' rights, title and interest in and to the following tangible and
intangible assets used or useful in connection with the conduct of the business
or operations of the Station, but excluding the assets described in Section 2.2,
free and clear of any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, or encumbrances of any nature whatsoever (except
for Permitted Liens), including the following:
(a) The Tangible Personal Property;
(b) The Real Property;
(c) The Licenses;
(d) The Assumed Contracts;
(e) The Intangibles and the goodwill of the Station, if any;
-4-
<PAGE> 11
(f) The Accounts Receivable;
(g) All of Sellers' proprietary information, technical information and
data, machinery and equipment warranties, maps, computer discs and tapes, plans,
diagrams, blueprints, and schematics, relating to the business and operation of
the Station; and
(h) All of Sellers' books and records relating to the business or
operations of the Station, other than those described in Section 2.2(b),
including all records required by the FCC to be kept by the Station.
2.2 EXCLUDED ASSETS. The Assets shall exclude the following assets (the
"Excluded Assets"):
(a) Sellers' cash on hand as of the Closing and all other cash in any
of Sellers' bank or savings accounts; any insurance policies, letters of credit,
or other similar items and cash surrender value in regard thereto; and any
stocks, bonds, certificates of deposit and similar investments;
(b) All books and records that either Seller is required by law to
retain, that pertain to either Seller's organization or other internal matters
and all tax records;
(c) Any pension, profit-sharing, or employee benefit plans, and any
collective bargaining agreements;
(d) Claims of either Seller with respect to matters occurring prior to
the Closing Date;
(e) Rights to the name "Paxson," "PAX" or any logo, variation or
derivation thereof, and the call sign "BPT";
(f) Prepaid expenses for which Sellers do not receive a credit under
Section 2.3(b) hereof and deposits to the extent not reflected in the
adjustments made pursuant to Section 2.3(b) hereof;
(g) All of the equipment and other tangible personal property and
leasehold and other real property interests relating to the Station which are
not located at the Station's transmitter site;
(h) All assets or property of Sellers not related to the Station; and
(i) All other property listed on SCHEDULE 2.2 hereto.
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2.3 PURCHASE PRICE.
(a) PURCHASE PRICE. The Purchase Price for the Assets shall be
Twenty-One Million Dollars ($21,000,000), adjusted as provided in Sections
2.3(b) and (d) below.
(b) PRORATIONS. The Purchase Price shall be increased or
decreased as required to effectuate the proration of the revenues and expenses
of the Station, other than expenses for which Buyer is obligated to reimburse
Sellers under the Time Brokerage Agreement. All revenues and all expenses
arising from the operation of the Station, including business and license fees,
utility charges, real and personal property taxes and assessments levied against
the Assets, property and equipment rentals, applicable copyright or other fees,
sales and service charges, taxes (except for taxes arising from the transfer of
the Assets under this Agreement), programming fees and expenses, employee
compensation, including wages and accrued vacation and sick leave for all
employees of Sellers who become employees of Buyer, annual regulatory fees
imposed by the FCC and similar prepaid and deferred items, shall be prorated
between Buyer and Sellers in accordance with GAAP and the principle that Sellers
shall be entitled to all revenues and shall be responsible for all expenses,
costs, and liabilities allocable to the period prior to the Closing Date
(subject to reimbursement by Buyer pursuant to the Time Brokerage Agreement) and
Buyer shall be entitled to all revenues and shall be responsible for all
expenses, costs, and obligations allocable to the period on and after the
Closing Date. Notwithstanding the preceding sentence, there shall be no
adjustment for, and Sellers shall remain solely liable with respect to, any
Contracts not included in the Assumed Contracts and any other obligation or
liability not being assumed by Buyer in accordance with Section 2.5.
(c) MANNER OF DETERMINING PRORATIONS ADJUSTMENTS.
(i) Any adjustments pursuant to Section 2.3(b) will,
insofar as feasible, be determined and paid on the Closing Date, with final
settlement and payment by the appropriate party occurring as set forth below.
Sellers shall prepare and deliver to Buyer not later than five (5) days before
the Closing Date a preliminary settlement statement which shall set forth
Sellers' good faith estimate of the prorations under Section 2.3(b). The
preliminary settlement statement shall contain all information reasonably
necessary to determine the prorations under Section 2.3(b), including
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer, to the extent such prorations can be determined
or estimated as of the date of the preliminary settlement statement and shall be
certified by an officer (but without personal liability of such officer) on
behalf of Sellers to be true and complete to Sellers' knowledge.
(ii) Not later than ninety days after the Closing
Date, Buyer shall deliver to Sellers a statement setting forth Buyer's
determination of any changes to the prorations
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made at the Closing pursuant to Section 2.3(b). Buyer's statement (A) shall
contain all information reasonably necessary to determine the prorations to the
Purchase Price under Section 2.3(b), including appropriate supporting
documentation, and such other information as may be reasonably requested by
Sellers, and (B) shall be certified by an officer (but without personal
liability to such officer) on behalf of Buyer to be true and complete to Buyer's
knowledge. Sellers (and their authorized representatives) shall have the right
to visit the Station during normal business hours to verify and review such
documentation upon providing reasonable notice to Buyer (such access not to
unreasonably interfere with the business or operations of the Station). If
Sellers dispute the prorations determined by Buyer pursuant to Section 2.3(b),
they shall deliver to Buyer within fifteen days after their receipt of Buyer's
statement a statement setting forth their determination of such prorations. If
Sellers notify Buyer of their acceptance of Buyer's statement, or if Sellers
fail to deliver their statement within the fifteen-day period specified in the
preceding sentence, Buyer's determination of such adjustments and prorations
shall be conclusive and binding on the parties as of the last day of such
fifteen-day period.
(iii) Buyer and Sellers shall use good faith efforts to
resolve any dispute involving the determination of the prorations pursuant to
Section 2.3(b) in connection with the Closing. If the parties are unable to
resolve any dispute within fifteen days following the delivery to Buyer of the
statement described in the penultimate sentence of Section 2.3(c)(ii), Buyer and
Sellers shall jointly designate an independent certified public accountant, who
shall be knowledgeable and experienced in the operation of television
broadcasting stations, to resolve such dispute. If the parties are unable to
agree on the designation of an independent certified public accountant, the
selection of the accountant to resolve the dispute shall be submitted to
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association. The accountant's resolution of the dispute shall be
final and binding on the parties, and a judgment may be entered thereon in any
court referred to in Section 11.12 hereof. Any fees of the accountant, and, if
necessary, for arbitration to select such accountant, shall be split equally
between the parties.
(d) CABLE HOMES ADJUSTMENT. If the Station's programming is provided to
less than 900,000 cable television system or other multichannel video
programming service provider customers ("Cable Homes") as of the Closing Date,
as determined pursuant to Section 2.3(e)(i) below, the Purchase Price payable to
Sellers at Closing shall be reduced by an amount equal to the product of (x) the
difference between 900,000 and the number of Cable Homes to which the Station's
programming is provided as of the Closing Date and (y) Twenty-Two Dollars
($22.00) (such product is the "Cable Homes Closing Holdback"). If the Station's
programming is provided to less than 900,000 Cable Homes as of the Closing Date,
as determined pursuant to Section 2.3(e)(i) below, Buyer shall, on the Closing
Date, pay to Sellers in accordance with Section 2.4 the Purchase Price less the
amount of the Cable Homes Closing Holdback and deposit with the Escrow Agent by
federal wire transfer of same-day funds the
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<PAGE> 14
amount of the Cable Homes Closing Holdback. All such funds deposited with the
Escrow Agent and all interest and other proceeds earned thereon (the "Closing
Escrow Fund") shall be held and disbursed in accordance with the terms of the
Escrow Agreement and the following provisions:
(i) If the Station's programming is provided to 900,000 or
more Cable Homes, as determined pursuant to Section 2.3(e)(ii) below, as of any
date (the "Interim Disbursement Date") during the period commencing on the
Closing Date , Buyer and Sellers shall jointly instruct the Escrow Agent no
later than two (2) business days following the Interim Disbursement Date to
disburse to Sellers all amounts held by the Escrow Agent, including the entire
amount of the Cable Homes Closing Holdback and all interest or other proceeds
earned thereon.
(ii) Subject to subsection (iii) below, if the total number of
Cable Homes to which the Station's programming is provided as of the date that
is 180 days after the Closing Date (the "Holdback Deadline") is more than the
number of Cable Homes to which the Station's programming was provided on the
Closing Date but less than 900,000 (such total is the "Holdback Deadline
Total"), as determined pursuant to Section 2.3(e)(iii) below, Buyer and Sellers
shall jointly instruct the Escrow Agent no later than two (2) business days
following the Holdback Deadline to:
(A) disburse to Sellers from the Closing Escrow Fund
an amount equal to the sum of (1) the product of (x) the difference
between the Holdback Deadline Total and the number of Cable Homes to
which the Station's programming was provided as of the Closing Date and
(y) Twenty-Two Dollars ($22.00) and (2) the portion of the interest
earned on the Closing Escrow Fund as of the Holdback Deadline that is
allocable to the amount to be disbursed to Sellers pursuant to this
clause (A); and
(B) disburse to Buyer the balance of the Closing
Escrow Fund after the disbursement described in clause (A) immediately
above.
(iii) Notwithstanding the requirements of Section 2.3(d)(ii)
above, if on the Holdback Deadline the sum of (x) the number of Cable Homes to
which the Station's programming is provided as of the Holdback Deadline and (y)
the number of Cable Homes covered by a decision issued by the FCC on or before
the Holdback Deadline that modifies the Station's broadcast market for purposes
of the mandatory signal carriage provisions of the Cable Television Consumer
Protection and Competition Act of 1992 to include additional communities within
such broadcast market (a "Favorable Market Modification Decision") equals or
exceeds 900,000, as determined pursuant to Section 2.3(e)(iii) below, regardless
of whether the Station's programming is provided as of the Holdback Deadline to
the Cable Homes covered by the Favorable Market Modification Decision, the
amount of the Cable Homes Closing Holdback and
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<PAGE> 15
all interest or other proceeds earned thereon shall be retained by the Escrow
Agent and shall be disbursed as follows:
(A) If the Station's programming is not provided to
900,000 or more Cable Homes, as determined pursuant to Section
2.3(e)(iv), as of the date that is 180 days after the Holdback Deadline
(the "Final Disbursement Date"), but is provided to more Cable Homes
than the number of Cable Homes to which the Station's programming was
provided on the Closing Date, the funds held by the Escrow Agent shall
be disbursed in accordance with the procedure set out in Section 2.3
(d)(ii) (except that, for the purpose of this Section 2.3(d)(iii)(A),
each reference in Section 2.3(d)(iii) to the "Holdback Deadline" shall
be deemed to be a reference to the "Final Disbursement Date"); and
(B) If, during the period between the Holdback
Deadline and the Final Disbursement Date, the FCC issues a decision
that reverses the Favorable Market Modification Decision and such
decision becomes a Final Order, the date such decision becomes a Final
Order shall be considered the Final Disbursement Date and the funds
held by the Escrow Agent shall be disbursed to the parties in
accordance with the procedures established in Section 2.3(d)(ii) above
(except that, for the purpose of this Section 2.3(d)(iii)(B), each
reference in Section 2.3(d)(iii) to the "Holdback Deadline" shall be
deemed to be a reference to the "Final Disbursement Date").
(iv) If the FCC issues the Favorable Market Modification
Decision prior to the Holdback Deadline and the provisions of Section
2.3(d)(iii) above become applicable, Buyer will use its best efforts to exercise
its carriage rights on the cable systems in the communities covered by the
Favorable Market Modification Decision.
(v) Neither Buyer nor any affiliate, employee or agent of
Buyer shall enter into any agreement or arrangement, written or oral, or
initiate or entertain any discussions regarding any such agreement or
arrangement, that prevents, limits or delays Buyer's ability to increase the
number of Cable Homes to which the Station's programming is provided during the
period commencing on the date of this Agreement and ending on the Final
Disbursement Date.
Notwithstanding any provision of this Agreement to the
contrary, Sellers' shall be permitted to negotiate and enter one or more into
contracts regarding carriage of the Station's programming by cable television
systems and other multichannel video service providers, so long as Buyer is not
obligated under the terms of such contracts to make any payments to such systems
or providers to obtain or maintain such carriage (collectively, the "Carriage
Agreements"). If Sellers shall have entered into one or more Carriage Agreements
prior to the Closing Date, Buyer shall assume, effective as of the Closing Date,
Sellers' obligations thereunder, to the extent such obligations are to be
performed on or after the Closing Date. At Sellers' request, Buyer shall enter
into any Carriage Agreement that Sellers have
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<PAGE> 16
negotiated during the period commencing on the Closing Date and ending on the
Final Disbursement Date.
Upon any reasonable request of Sellers, Buyer shall, on a
timely basis, (i) oppose any request for administrative or judicial
reconsideration, review, appeal or stay of any Favorable Market Modification
Decision, (ii) file and prosecute all requests for administrative or judicial
reconsideration, review, appeal or stay of any decision by the FCC to refuse to
modify the Station's broadcast market for purposes of the mandatory signal
carriage provisions of the Cable Television Consumer Protection Competition Act
of 1992 and (iii) file and prosecute any Complaint or other pleading permitted
to be filed with the FCC for the purpose of requiring cable television systems
or other multichannel video service program providers to carry the Station's
programming (a "Complaint") and any request for administrative or judicial
reconsideration, review, appeal or stay of any action taken by the FCC with
respect to any Complaint. Sellers' shall be permitted to participate in and
control, at Sellers' sole expense, to the fullest extent permitted by the Act
and the rules, regulations and policies of the FCC, the proceedings described in
clauses (i), (ii) and (iii) above.
(e) MANNER OF DETERMINING CABLE HOMES ADJUSTMENT.
(i) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Closing Date a statement which shall set forth Sellers'
good faith estimate of the number of Cable Homes to which the Station's
programming is provided as of the Closing Date. The statement shall contain
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer and shall be certified by an officer (but without
personal liability of such officer) on behalf of Sellers to be true and complete
to Sellers' knowledge.
(ii) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Interim Disbursement Date a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Interim Disbursement Date. The
statement shall contain appropriate supporting documentation and such other
information as may be reasonably requested by Buyer and shall be certified by an
officer (but without personal liability of such officer) on behalf of Sellers to
be true and complete to Sellers' knowledge.
(iii) Sellers shall prepare and deliver to Buyer not later
than five (5) days before the Holdback Deadline a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Holdback Deadline and which are
covered by a Favorable Market Modification Decision. The statement shall contain
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer and shall be certified by an officer (but without
personal liability of such officer) on behalf of Sellers to be true and complete
to Sellers' knowledge.
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<PAGE> 17
(iv) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Final Disbursement Date a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Final Disbursement Date. The
statement shall contain appropriate supporting documentation and such other
information as may be reasonably requested by Buyer and shall be certified by an
officer (but without personal liability of such officer) on behalf of Sellers to
be true and complete to Sellers' knowledge.
(v) Buyer and Sellers shall use good faith efforts to resolve
any dispute involving the determination of the adjustment pursuant to Section
2.3(d). If the parties are unable to resolve any dispute within fifteen (15)
days following the delivery to Buyer of the statements described in Sections
2.3(e)(i), (ii), (iii) and (iv), Buyer and Sellers shall jointly designate an
independent certified public accountant, who should be knowledgeable and
experienced in the operation of television broadcasting stations and cable
television systems, to resolve such dispute. If the parties are unable to agree
on the designation of an independent certified public accountant, the selection
of the accountant to resolve the dispute shall be submitted to arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The accountant's resolution of the dispute shall be final and
binding on the parties, and a judgment may be entered thereon in any court
referred to in Section 11.12 hereof. Any fees of the accountant, and, if
necessary for arbitration to select such accountant, shall be split equally
between the parties.
2.4 PAYMENT OF PURCHASE PRICE. The Purchase Price, as adjusted under
Sections 2.3(b) and (d), shall be paid by Buyer to Sellers at Closing by federal
wire transfer of same-day funds pursuant to wire instructions delivered by
Sellers to Buyer at least two business (2) days prior to the Closing Date.
2.5 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. As of the Closing Date,
Buyer shall assume and undertake to pay, discharge, and perform all obligations
and liabilities (a) under the Licenses and the Assumed Contracts insofar as they
relate to the period on and after the Closing Date, (b) with respect to which an
adjustment to the Purchase Price is made in favor of Buyer pursuant to Section
2.3(b), (c) to any former employee of Sellers who is hired by Buyer insofar as
such obligations and liabilities relate to the period on and after the Closing
Date, and (d) arising out of the business or operations of the Station on and
after the Closing Date. Buyer shall not assume any other obligations or
liabilities of Sellers, including (i) any obligations or liabilities under any
Contract not included in the Assumed Contracts, (ii) any obligations or
liabilities under the Licenses or Assumed Contracts relating to the period prior
to the Closing Date, (iii) any claims, litigation or proceedings relating to
Sellers' operation of the Station prior to the Closing, (iv) any obligations or
liabilities arising under capitalized leases or other financing agreements not
assumed by Buyer, and (v) any obligations or liabilities of Sellers
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<PAGE> 18
under any employee pension or retirement plan or collective bargaining agreement
(all of the foregoing are referred to hereinafter collectively as the "Seller
Retained Liabilities"). All Seller Retained Liabilities shall remain and be the
obligations and liabilities solely of Sellers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as set forth below.
3.1 ORGANIZATION, STANDING, AND AUTHORITY. Sellers are corporations
duly organized, validly existing, and in good standing under the laws of the
State of Florida. Paxson-31 is duly qualified as a foreign corporation and is in
good standing in the States of Connecticut, New York and New Jersey. Each Seller
has all requisite corporate power and authority (i) to own, lease, and use those
Assets that are owned, leased and used by it, as now owned, leased, and used,
(ii) to conduct the business and operations of the Station as now conducted, and
(iii) to execute and deliver this Agreement and the documents contemplated
hereby, and to perform and comply with all of the terms, covenants, and
conditions to be performed and complied with by such Seller hereunder.
3.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery, and
performance by Sellers of this Agreement and the documents contemplated hereby
have been duly authorized by all necessary corporate actions on the part of
Sellers. This Agreement has been duly executed and delivered by Sellers and
constitutes the legal, valid, and binding obligation of Sellers, enforceable
against them in accordance with its terms, except as the enforceability of this
Agreement may be affected by bankruptcy, insolvency, or similar laws affecting
creditors' rights generally, and by judicial discretion in the enforcement of
equitable remedies.
3.3 ABSENCE OF CONFLICTING AGREEMENTS. Subject to obtaining the FCC
Consent, the Consents listed on SCHEDULE 3.3 and applicable requirements under
the HSR Act (as defined below), the execution, delivery, and performance by
Sellers of this Agreement and the documents contemplated hereby (with or without
the giving of notice, the lapse of time, or both): (i) do not require the
consent of any third party, except for such consents the failure of which to
obtain could not reasonably be expected to have a Material Adverse Effect; (ii)
will not conflict with any provision of the organizational documents of Sellers;
(iii) will not conflict with, result in a breach of, or constitute a default
under, any law, judgment, order, ordinance, injunction, decree, rule,
regulation, or ruling of any court or governmental instrumentality; and (iv)
will not conflict with, constitute grounds for termination of, result in a
breach of, or constitute a default under, any material agreement, instrument,
license, or permit to which either Seller is a party or by which either Seller
may be bound, including, without limitation, any agreement to sell the Assets to
Cuchifritos Communications, L.L.C.
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<PAGE> 19
3.4 GOVERNMENTAL LICENSES. SCHEDULE 3.4 includes true and complete
copies of all material Licenses, including FCC Licenses and those issued by the
FAA, if any. All FCC Licenses have been validly issued, and Paxson License is
the authorized legal holder thereof. The FCC Licenses included in SCHEDULE 3.4
comprise all of the material licenses, permits, and other authorizations
required from any governmental or regulatory authority for the lawful conduct of
the business and operations of the Station in the manner and to the extent they
are now conducted. The FCC Licenses are in full force and effect, and the
conduct of the business and operations of the Station is in compliance therewith
except for such noncompliance that could not reasonably be expected to have a
Material Adverse Effect. Notwithstanding any provision in this Agreement to the
contrary, Sellers make no representation or warranty regarding the fitness or
suitability of the Station's existing facilities, including the existing
transmitter site, for the Station's DTV operations.
3.5 TITLE TO AND CONDITION OF REAL PROPERTY. SCHEDULE 3.5 contains an
accurate description of the Real Property. With respect to the leasehold
interest included in the Real Property, so long as Sellers fulfill their
obligations under the lease therefor, Sellers have enforceable rights to
nondisturbance and quiet enjoyment. All towers, guy anchors, and buildings and
other improvements included in the Assets are located entirely on the Real
Property listed in SCHEDULE 3.5. Sellers have delivered to Buyer true and
complete copies of all leases pertaining to the Real Property. All Real Property
(including the improvements thereon) (i) is in good condition and repair in all
material respects consistent with its present use (wear and tear excepted), (ii)
is available for immediate use in the conduct of the business and operations of
the Station as currently conducted, and (iii) complies with all applicable
building or zoning codes and the regulations of any governmental authority
having jurisdiction except for any noncompliance that could not reasonably be
expected to have a Material Adverse Effect.
3.6 TITLE TO AND CONDITION OF TANGIBLE PERSONAL PROPERTY. Except as
described in SCHEDULE 3.6, Sellers own and have good title to each item of
Tangible Personal Property, and none of the Tangible Personal Property owned by
Sellers is subject to any security interest, mortgage, pledge, conditional sales
agreement, or other lien or encumbrance, except for Permitted Liens and liens
set forth on SCHEDULE 3.6 hereto. Each item of Tangible Personal Property is
available for immediate use in the business and operations of the Station as
currently conducted. All items of transmitting equipment included in the
Tangible Personal Property (i) have been maintained in all material respects in
a manner consistent with generally accepted standards of good engineering
practice, and (ii) will permit the Station to operate in material compliance
with the terms of the FCC Licenses, the Communications Act of 1934, as amended
(the "Act") as well as the rules, regulations and published policies of the FCC,
and with all other applicable federal, state, and local statutes, ordinances,
rules, and regulations.
3.7 ASSUMED CONTRACTS. Sellers have delivered to Buyer true and
complete copies of all Contracts listed on SCHEDULE 3.7. All of the Assumed
Contracts are in full force and effect.
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<PAGE> 20
Sellers are in material compliance with the Assumed Contracts, and, to Sellers'
knowledge, there is not under any Assumed Contract any material default by any
other party thereto or any event that, after notice or lapse of time or both,
could constitute a material default. Except for the need to obtain the Consents
listed in SCHEDULE 3.3, Sellers have full legal power and authority to assign
their rights under the Assumed Contracts to Buyer in accordance with this
Agreement.
3.8 BROKER. Neither Sellers nor any person acting on Sellers' behalf
has incurred any liability for any finders' or brokers' fees or commissions in
connection with the transactions contemplated by this Agreement, except for fees
payable to Communications Equity Associates and Media Ventures Partners, which
shall be the sole responsibility of Sellers.
3.9 INTANGIBLES. SCHEDULE 3.9 is a true and complete list of all
material Intangibles (exclusive of those listed in SCHEDULE 3.4), all of which
are valid and in good standing and uncontested. Sellers have delivered to Buyer
copies of all documents establishing or evidencing all material Intangibles. To
Sellers' knowledge, neither Seller is infringing upon or otherwise acting
adversely to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications, know-how, methods, or processes owned
by any other person or persons.
3.10 INSURANCE. SCHEDULE 3.10 sets forth all policies of insurance
covering the Assets and such policies are in full force and effect.
3.11 REPORTS. All material returns, reports, and statements required to
be filed by Sellers with respect to the Station with the FCC or with any other
governmental agency have been filed, and all reporting requirements of the FCC
and other governmental authorities having jurisdiction over Sellers and the
Station have been complied with by Sellers in all material respects. All of such
returns, reports, and statements are complete and correct as filed in all
material respects. Sellers have paid to the FCC all annual regulatory fees
required to be paid by Sellers with respect to the FCC Licenses. The local
public inspection file required to be maintained by the Station has been
maintained in all material respects with the requirements of Section 73.3526 of
the FCC's Rules.
3.12 PERSONNEL.
(a) EMPLOYEES AND COMPENSATION. SCHEDULE 3.12 contains a true and
complete list in all material respects of all employees of Sellers who are
employed at the Station, their job titles, date of hire and current salary.
SCHEDULE 3.12 also contains a description as of the date of this Agreement of
all employee benefit plans or arrangements applicable to Sellers' employees at
the Station. All employee benefits and welfare plans or arrangements listed in
SCHEDULE 3.12 were established and have been executed, managed and administered
in all material respects in accordance with the Internal Revenue Code of 1986,
as amended, the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Sellers
are not aware of the existence of any governmental audit or examination of any
of such plans or arrangements.
(b) LABOR RELATIONS. Neither Seller is a party to or subject to any
collective bargaining agreements with respect to the Station. Sellers have no
written contracts of employment with any employee of the Station. Sellers have
complied in all material respects with all laws, rules, and regulations relating
to the employment of labor, including those related to wages, hours, collective
bargaining, occupational safety, discrimination, and the payment of social
security and other payroll related taxes. No labor union or other collective
bargaining unit represents or to Sellers' knowledge, claims to represent any of
Sellers' employees at the Station. To Sellers' knowledge, there is no union
campaign being conducted to solicit cards from employees to authorize a union to
request a National Labor Relations Board certification election with respect to
Sellers' employees at the Station.
3.13 TAXES. Sellers have filed or caused to be filed all federal, state and
local income tax returns required to be filed by Sellers and have paid or
accrued all taxes shown on those returns to the extent such taxes have become
due, except where the failure to file such returns or pay or accrue such taxes
does not result in a lien on the Assets or in the imposition of transferee
liability on Buyer for the payment of such taxes. There are no proceedings
pending pursuant to which Sellers are or could be made liable for any taxes,
penalties, interest, or other charges, the liability for which could extend to
Buyer as transferee of the Assets or as operator of the Station following the
Closing, and, to Sellers' knowledge, no event has occurred that could impose on
Buyer any transferee liability for any taxes, penalties, or interest due or to
become due from Sellers.
3.14 CLAIMS AND LEGAL ACTIONS. Except for any FCC rulemaking proceedings
generally affecting the broadcasting industry, including, without limitation,
the FCC rulemaking identified as In the Matter of Advanced Television Systems,
MM Docket No. 87-268 and any related or subsequent FCC or court proceeding, or
as listed on SCHEDULE 3.14 attached hereto, there is no material claim, legal
action, counterclaim, suit, arbitration, governmental investigation or other
legal, administrative, or tax proceeding, nor any material order, decree or
judgment pending or, to Sellers' knowledge, threatened, against Sellers with
respect to their ownership or operation of the Station or otherwise relating to
the Assets.
3.15 ENVIRONMENTAL MATTERS.
(a) With respect to their operation of the Station, Sellers are in
compliance in all material respects with all laws, rules, and regulations of all
federal, state, and local governments (and all agencies thereof) concerning the
environment, and Sellers have received no written notice of a charge, complaint,
action, suit, proceeding, hearing, investigation, claim,
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<PAGE> 22
demand, or notice having been filed or commenced against Sellers in connection
with their operation of the Station alleging any failure to comply with any such
law, rule, or regulation.
(b) To Sellers' knowledge, Sellers have no material liability relating
to their operation of the Station under any law, rule or regulation of any
federal, state, or local government (or agency thereof) concerning the release
or threatened release of hazardous substances, pollution or protection of the
environment.
(c) To Sellers' knowledge, in connection with Sellers' operation of the
Station, Sellers hold and are in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal, state, and local
laws, rules, and regulations relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
3.16 COMPLIANCE WITH LAWS. Sellers are in material compliance with the
Licenses and all federal, state, and local laws, rules, regulations, and
ordinances applicable or relating to the ownership or operation by Sellers of
the Station. Neither the ownership or operation of the Assets by Sellers
conflicts in any material respect with the rights of any other person or entity.
3.17 CONDUCT OF BUSINESS IN ORDINARY COURSE. Sellers have conducted the
business and operations of the Station in the ordinary course of business
consistent with past practices in all material respects and have not:
(a) Made any sale, assignment, lease, or other transfer of the
Station's properties other than obsolete assets no longer used in the operation
of the Station or other assets sold or disposed of in the normal and usual
course of business with suitable replacements being obtained therefor;
(b) Canceled any debts owed to or claims held by Sellers with respect
to the Station, except in the normal and usual course of business; or
(c) Suffered any material write-down of the value of any Assets or any
material write-off as uncollectible of any accounts receivable of the Station,
except in the normal and usual course of business.
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3.18 INSOLVENCY. No insolvency proceedings of any character, including,
without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting either Sellers
or any of the Assets is pending or, to Sellers' knowledge, threatened, and
Sellers have not made any assignment for the benefit of creditors, nor taken any
actions with a view to, or which would constitute the basis for, the institution
of any such insolvency proceedings.
3.19 CABLE CARRIAGE. SCHEDULE 3.19 annexed hereto sets forth, to Sellers'
knowledge, a correct and complete list in all material respects of all cable
television systems that carry the Station's signal on the date hereof under the
FCC's "must carry" rules or under agreements implementing such rules.
3.20 DISCLAIMER. Except for the foregoing representations and warranties
specifically set forth in Sections 3.1 through 3.19, and the representations and
warranties in the Certificate to be delivered by Sellers pursuant to Section
8.2(c), the Assets are being transferred by Sellers to Buyer without any
representation or warranty, all other representations and warranties of any
kind, either express or implied, including warranties of fitness, being hereby
expressly disclaimed. Without limiting the generality of the foregoing, Buyer
acknowledges that neither Sellers nor any director, officer, employee or agent
of Sellers has made any warranty or representation, express or implied, as to
the revenue or income to be derived from the Station or the expenses to be
incurred with respect thereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION, STANDING, AND AUTHORITY. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Tennessee and, as of the Closing Date, will be duly qualified as a foreign
corporation and in good standing in the State of Connecticut and each other
jurisdiction in which such qualification is necessary for Buyer to own the
Assets and operate the Station. Buyer has all requisite power and authority to
execute and deliver this Agreement and the documents contemplated hereby, and to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by Buyer hereunder.
4.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery, and
performance by Buyer of this Agreement and the documents contemplated hereby
have been duly authorized by all necessary actions on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid, and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as the enforceability of this Agreement may
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be affected by bankruptcy, insolvency, or similar laws affecting creditors'
rights generally and by judicial discretion in the enforcement of equitable
remedies.
4.3 ABSENCE OF CONFLICTING AGREEMENTS. Subject to obtaining the FCC
Consent, the Consents listed on SCHEDULE 4.3 and applicable requirements under
the HSR Act, the execution, delivery, and performance by Buyer of this Agreement
and the documents contemplated hereby (with or without the giving of notice, the
lapse of time, or both): (i) do not require the consent of any third party
except for such consents the failure of which to obtain could not reasonably be
expected to have a material adverse effect on the performance by Buyer of its
obligations hereunder; (ii) will not conflict with the organizational documents
of Buyer; (iii) will not conflict with, result in a breach of, or constitute a
default under, any law, judgment, order, injunction, decree, rule, regulation,
or ruling of any court or governmental instrumentality; or (iv) will not
conflict with, constitute grounds for termination of, result in a breach of, or
constitute a default under, any material agreement, instrument, license, or
permit to which Buyer is a party or by which Buyer may be bound, such that Buyer
could not acquire or operate the Assets.
4.4 BROKER. Neither Buyer nor any person acting on Buyer's behalf has
incurred any liability for any finders' or brokers' fees or commissions in
connection with the transactions contemplated by this Agreement.
4.5 BUYER QUALIFICATIONS. Buyer is, and as of the Closing will be, legally,
financially and otherwise qualified to perform its obligations hereunder and to
be the licensee of and to acquire, own and operate the Station under the
Communications Act of 1934, as amended, and the rules, regulations and policies
of the FCC. Buyer knows of no fact that would disqualify Buyer as assignee of
the FCC Licenses or as the owner and operator of the Station. To Buyer's
knowledge, no waiver of any FCC rule or policy is required for the grant of the
FCC Consent.
4.6 FINANCING. Buyer currently has and will have on the Closing Date
sufficient funds to enable it to consummate the transactions contemplated
hereby. Buyer acknowledges that the availability of any financing shall not be a
condition to its obligation to consummate the transactions contemplated hereby
at the Closing, or to any of its other obligations hereunder.
4.7 INSOLVENCY. No insolvency proceedings of any character, including,
without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting Buyer is pending
or, to Buyer's knowledge, threatened, and Buyer has not made any assignment for
the benefit of creditors, nor taken any actions with a view to, or which would
constitute the basis for, the institution of any such insolvency proceedings.
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SECTION 5. OPERATION OF THE STATION PRIOR TO CLOSING
5.1 GENERALLY. Subject to the provisions of the Time Brokerage Agreement,
Sellers agree that, between the date of this Agreement and the Closing Date,
Sellers shall operate the Station in all material respects in the ordinary
course of business in accordance with their past practices (except where such
conduct would conflict with the following covenants or with Sellers' other
obligations under this Agreement or the Time Brokerage Agreement), and in
accordance with the other covenants in this Section 5; it being expressly
understood by Buyer that any action taken or failed to be taken by Sellers
pursuant to the Time Brokerage Agreement shall not constitute a breach or
default by Sellers of their obligations hereunder, notwithstanding any provision
hereof to the contrary.
5.2 COMPENSATION. Sellers shall not increase in any material respect the
compensation, bonuses, or other benefits payable or to be payable to any person
employed by Sellers in connection with the conduct of the business or operations
of the Station, except in accordance with past practices.
5.3 CONTRACTS. Sellers will not, without the prior written consent of
Buyer, which consent shall not be unreasonably withheld, amend any Assumed
Contract or enter into any contract or commitment relating to the Station that
will be binding on Buyer after Closing.
5.4 DISPOSITION OF ASSETS. Sellers shall not sell, assign, lease, or
otherwise transfer or dispose of any of the Assets, except where no longer used
or useful in the business or operations of the Station or in connection with the
acquisition of replacement property of equivalent kind and value.
Notwithstanding the foregoing, the expiration by their terms of Contracts prior
to Closing shall not be deemed a violation of this Agreement.
5.5 ENCUMBRANCES. Sellers shall not create or assume any claim, liability,
mortgage, lien, pledge, condition, charge, or encumbrance of any nature
whatsoever upon the Assets, except for (i) liens disclosed on SCHEDULE 3.5 or
SCHEDULE 3.6, which liens shall be removed on or prior to the Closing Date and
(ii) Permitted Liens.
5.6 FCC LICENSES. Sellers shall not cause or permit, by any act or failure
to act, any material FCC License to expire or to be revoked, suspended, or
modified in any materially adverse respect, or take any action that could
reasonably be expected to cause the FCC or any other governmental authority to
institute proceedings for the suspension, revocation, or materially adverse
modification of any material FCC License. Sellers shall prosecute the Station's
pending renewal application with all reasonable diligence.
5.7 ACCESS TO INFORMATION. Sellers shall give Buyer and its authorized
representatives access, during normal business hours and with reasonable prior
notice, to the Assets and to all
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other books, records, Contracts, and documents relating to the Station for the
purpose of audit and inspection, so long as such audit and inspection do not
unreasonably interfere with the business and operations of the Station.
5.8 MAINTENANCE OF ASSETS. Sellers shall use commercially reasonable
efforts to maintain the Assets in good condition (ordinary wear and tear
excepted). Sellers shall maintain inventories of spare parts and expendable
supplies at levels consistent with past practices. If any loss, damage,
impairment, confiscation, or condemnation of or to any of the Assets occurs,
Sellers shall repair, replace, or restore the Assets to their prior condition as
represented in this Agreement as soon thereafter as possible, and Sellers shall
use the proceeds of any claim under any insurance policy solely to repair,
replace, or restore any of the Assets that are lost, damaged, impaired, or
destroyed.
5.9 INSURANCE. Sellers shall maintain the existing insurance policies on
the Station and the Assets through the Closing Date.
5.10 CONSENTS. Sellers shall use commercially reasonable efforts to obtain
the Consents without any change in the terms or conditions of any Assumed
Contract or License that could be materially less advantageous to the Station
than those pertaining under the Assumed Contract or License as in effect on the
date of this Agreement; PROVIDED, HOWEVER, that Sellers' failure to obtain any
Consent shall not constitute a breach of this Agreement so long as Sellers shall
have used commercially reasonable efforts to obtain such Consent. Sellers shall
promptly advise Buyer of any difficulties experienced in obtaining any of the
Consents and of any conditions proposed, considered, or requested for any of the
Consents. Buyer shall use commercially reasonable efforts to assist Sellers in
obtaining the Consents, including, without limitation, executing such assumption
instruments and other documents as may be reasonably required in connection with
obtaining the Consents.
5.11 CABLE CARRIAGE. Sellers shall take any and all commercially reasonable
actions, and not fail to take any commercially reasonable actions, to preserve
the Station's carriage on the cable television systems identified in SCHEDULE
3.19. Paxson License shall prosecute with all reasonable diligence the Petition
for Special Relief filed by Paxson License with the FCC on January 5, 1999,
concerning the proposed modification of the Station's television market
(identified as item 2 on SCHEDULE 3.14).
5.12 NOTICE OF PROCEEDINGS. Sellers will promptly notify Buyer (and in any
event within five (5) business days) upon receipt of notice of any actual or
threatened material claim, dispute, arbitration, litigation, complaint,
judgment, order, decree, action or proceeding relating to Sellers, the Station,
the Assets, or the consummation of this Agreement, other than FCC rulemaking
proceedings generally affecting the broadcasting industry.
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5.13 CONFIDENTIAL INFORMATION. If the transactions contemplated in this
Agreement are not consummated for any reason, neither Sellers nor Buyer shall
disclose to third parties (except to their respective agents and
representatives, who will be bound by this section) any information designated
as confidential and received from the other or its agents in the course of
investigating, negotiating, and consummating the transactions contemplated by
this Agreement: provided, that no information shall be deemed to be confidential
that (a) becomes publicly known or available other than through disclosure by
the disclosing party; (b) is rightfully received by the disclosing party from a
third party; or (c) is independently developed by the disclosing party. All
originals of all material designated as confidential provided by either party or
its agents shall be returned and all copies thereof shall be destroyed.
5.14 PERFORMANCE UNDER ASSUMED CONTRACTS. Sellers will perform in all
material respects their obligations under, and keep in effect, the Assumed
Contracts.
5.15 BOOKS AND RECORDS. Sellers shall maintain their books and records
relating to the Station in all material respects in accordance with past
practices.
5.16 NOTIFICATION. Sellers shall promptly notify Buyer in writing of any
material breach of Sellers' representations and warranties contained in Section
3 of this Agreement.
5.17 COMPLIANCE WITH LAWS. Sellers shall comply in all material respects
with all laws, published policies, rules, and regulations applicable or relating
to the ownership or operation by Sellers of the Station.
5.18 CURE. For all purposes under this Agreement, except in connection with
a failure by Buyer to pay the Purchase Price on the Closing Date, the existence
or occurrence of any events or circumstances that constitute or cause a breach
of a representation or warranty of Sellers or Buyer under this Agreement
(including, without limitation, in the case of Sellers, under the information
disclosed in the Schedules hereto) on the date such representation or warranty
is made shall be deemed not to constitute a breach of such representation or
warranty if such event or circumstance is cured in all material respects on or
before 10 days after the receipt by such party of written notice thereof from
the other party.
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS
6.1 FCC CONSENT.
(a) The assignment of the FCC Licenses in connection with the purchase
and sale of the Assets pursuant to this Agreement shall be subject to the prior
consent and approval of the FCC.
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(b) Sellers and Buyer shall file an appropriate application for the FCC
Consent within five (5) business days from the date hereof (the "Application").
The parties shall prosecute the Application with all reasonable diligence and
otherwise use their commercially reasonable efforts to obtain a grant of the
Application as expeditiously as practicable. Each party will promptly provide
the other party with copies of any pleadings or other documents received by such
party (that are not also separately provided to or served upon such other party)
with respect to the Application. Each party agrees to comply with any condition
imposed on it by the FCC Consent, except that no party shall be required to
comply with a condition if (1) the condition was imposed on it as the result of
a circumstance the existence of which does not constitute a breach by the party
of any of its representations, warranties, or covenants under this Agreement,
and (2) compliance with the condition would have a material adverse effect upon
it. Buyer and Sellers shall cooperate with each other and otherwise employ
commercially reasonable efforts to oppose any requests for reconsideration or
judicial review of the FCC Consent. If the Closing shall not have occurred for
any reason within the original effective period of the FCC Consent, and neither
party shall have terminated this Agreement under Section 9, the parties shall
jointly request an extension of the effective period of the FCC Consent. No
extension of the FCC Consent shall limit the exercise by any party of its rights
under Section 9.
6.2 HSR ACT. As soon as practicable after the execution hereof but in no
event later than ten business days after the execution hereof, each of Buyer and
Sellers shall make, to the extent required, all filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Buyer and Sellers agree to (i) cooperate with each other in connection
with all such HSR Act filings, which cooperation shall include furnishing the
other with any information or documents that may be reasonably required in
connection with such filings; (ii) promptly file, after any request by the
Federal Trade Commission ("FTC") or Department of Justice ("DOJ") and after
appropriate negotiation with the FTC or DOJ of the scope of such request, any
information or documents requested by the FTC or DOJ; and (iii) furnish each
other with any correspondence from or to, and notify each other of any other
communications with, the FTC or DOJ that relates to the transactions
contemplated hereunder, and to the extent practicable, to permit each other to
participate in any conferences with the FTC or DOJ. The transfer of the Assets
hereunder is expressly conditioned upon the waiting period relating to any such
filings having duly expired or been terminated by the appropriate government
agencies without the enforcement of any action by any such agencies to restrain
or postpone the transactions contemplated hereby.
6.3 CONTROL OF THE STATION. Prior to Closing, Buyer shall not, directly or
indirectly, control, supervise, direct, or attempt to control, supervise, or
direct, the operations of the Station; such operations, including complete
control and supervision of all of the programs, employees, and policies of the
Station, shall be the sole responsibility of Sellers until the Closing.
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6.4 RISK OF LOSS. The risk of any loss, damage, impairment, confiscation,
or condemnation of any of the Assets from any cause, other than as a result of
any action or omission of Buyer or any of its agents, shall be borne by Sellers
at all times prior to the Closing.
6.5 CONFIDENTIALITY. Except as necessary for the consummation of the
transaction contemplated by this Agreement, and except as and to the extent
required by law or any securities exchange, each party will keep confidential
any information obtained from the other party in connection with the
transactions contemplated by this Agreement. If this Agreement is terminated,
each party will return to the other party all information obtained by such party
from the other party in connection with the transactions contemplated by this
Agreement.
6.6 COOPERATION. Buyer and Sellers shall cooperate fully with each other
and their respective counsel and accountants in connection with any actions
required to be taken as part of their respective obligations under this
Agreement, and Buyer and Sellers shall execute such other documents as may be
necessary and desirable to the implementation and consummation of this
Agreement, and otherwise use their commercially reasonable efforts to consummate
the transaction contemplated hereby and to fulfill their obligations under this
Agreement. Notwithstanding the foregoing, Buyer shall have no obligation to
agree to any material adverse change in any License or Assumed Contract to
obtain a Consent required with respect thereto.
6.7 ACCESS TO BOOKS AND RECORDS. Sellers shall provide Buyer reasonable
access and the right to copy for a period of three years from the Closing Date
any books and records relating to the assets that are not included in the
Assets. Buyer shall provide Sellers reasonable access and the right to copy for
a period of three years from the Closing Date any books and records relating to
the Assets.
6.8 APPRAISAL. Unless they can otherwise agree, Buyer and Sellers agree to
allocate the Purchase Price for tax and recording purposes in accordance with an
appraisal to be completed as soon as practicable but in no event later than 90
days following Closing. The appraisal shall be conducted by an appraisal firm
with experience in the valuation of television station assets selected by
Sellers and Buyer. The appraisal shall be reasonably satisfactory to Sellers and
Buyer. Buyer and Sellers shall each pay one-half the cost of such appraisal.
6.9 BUYER CONDUCT. Buyer shall take no action or fail to take any action
that would (a) disqualify Buyer from being the licensee of the Station under the
Communications Act of 1934, as amended, and the rules, regulations and policies
of the FCC or (b) prevent Buyer from otherwise fulfilling its obligations to pay
the entire Purchase Price on the Closing Date.
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6.10 EMPLOYMENT MATTERS.
(a) Buyer shall not be obligated to employ any of Sellers' employees
and any such employment by Buyer shall be at its sole discretion and subject to
the terms of this Section 6.10, shall be on terms, conditions and policies of
employment established by Buyer; PROVIDED, HOWEVER, that Buyer shall not have
the right to employ any person designated on SCHEDULE 3.12 as an employee to be
retained by Sellers.
(b) Within a reasonable period of time after the Closing Date, Sellers
shall transfer from the Paxson Communications Corporation 401(k) Retirement Plan
(the "Sellers 401(k) Plan") to any 401(k) plan established by Buyer an amount,
in cash, equal to the aggregate account balances held in the Sellers 401(k) Plan
as of the date of transfer with respect to all employees of Sellers hired by
Buyer (each a "Hired Employee"). Prior to the date of any such transfer, and as
preconditions thereto: (i) Buyer shall use commercially reasonable efforts to
deliver to Sellers a copy of the most recently issued Internal Revenue Service
("IRS") determination letter (or other proof satisfactory to counsel for
Sellers) that the Buyer's 401(k) Plan is qualified under the Internal Revenue
Code (the "Code"), and (ii) Sellers shall use commercially reasonable efforts to
deliver to Buyer a copy of the most recently issued IRS determination letter (or
other proof satisfactory to counsel for the Buyer) that the Sellers 401(k) Plan
is qualified under the Code. Subsequent to the transfer of assets to the Buyer's
401(k) Plan, neither Sellers nor the Sellers 401(k) Plan shall retain any
liability with respect to such Hired Employees to provide them with benefits in
accordance with the terms of the Sellers 401(k) Plan. Sellers and Buyer agree to
cooperate with respect to any government filing, including, but not limited to,
the filing of IRS Forms 5310-A, if necessary, to effect the transfer of assets
contemplated by this Section 6.10(d).
(c) This Section 6.10 shall operate exclusively for the benefit of the
parties to this Agreement and is not intended for the benefit of any other
person, including, without limitation, any current or former employee of any
party hereto.
6.11 TIME BROKERAGE AGREEMENT. Subject to the expiration or termination of
the waiting period under the HSR Act, if applicable, without any unresolved
action by the DOJ or FTC to prevent the commencement of the Time Brokerage
Agreement, Buyer and Sellers shall enter into the Time Brokerage Agreement upon
no less than 10 business days notice from Buyer to Sellers. Buyer shall be
solely responsible for all costs and expenses relating to or arising from the
commencement of Buyer's programming on the Station and the performance by Buyer
of its other obligations under the Time Brokerage Agreement. No act or omission
of Buyer or its agents during the effective period of the Time Brokerage
Agreement shall constitute or result in a breach or default by Sellers of any
representation, warranty or covenant of Sellers contained in this Agreement.
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6.12 SERVICES AGREEMENT. At the Closing, Buyer and Paxson-40 shall enter
into the Services Agreement.
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS AT CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF BUYER. All obligations of Buyer at the
Closing are subject at Buyer's option to the fulfillment prior to or at the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Sellers contained in this Agreement shall be true and complete at and as of
the Closing Date as though made at and as of that time except for (i) any
inaccuracy that could not reasonably be expected to have a Material Adverse
Effect, (ii) any representation or warranty that is expressly stated only as of
a specified earlier date, in which case such representation or warranty shall be
true as of such earlier date, (iii) changes in any representation or warranty
that are contemplated by this Agreement or (iv) changes in any representation or
warranty as a result of any act or omission of Buyer or its agents.
(b) COVENANTS AND CONDITIONS. Sellers shall have performed and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing Date, except to
the extent such noncompliance would not have a Material Adverse Effect or
results from any act or omission of Buyer or its agents.
(c) CONSENTS. All Consents designated as "material" on SCHEDULE 3.3
(the "Material Consents") shall have been obtained and delivered to Buyer
without any material adverse change in the terms or conditions of any agreement
or any governmental license, permit, or other authorization.
(d) FCC CONSENT. The FCC Consent shall have been granted without the
imposition on Buyer of any conditions that need not be complied with by Buyer
under Section 6.1 hereof and Sellers shall have complied with any conditions
imposed on them by the FCC Consent; PROVIDED, HOWEVER, if a Petition or Appeal
(as defined in Section 8.1(a)) shall have been filed that contains one or more
allegations that could reasonably be expected to result in the denial or
dismissal of the Application based on the Act or the FCC's rules, regulations,
decisions or published policies then in effect, the FCC Consent shall have
become a Final Order.
(e) HSR ACT. The waiting period under the HSR Act shall have expired or
been terminated without any unresolved action by the DOJ or the FTC to prevent
the Closing.
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(f) TIME BROKERAGE AGREEMENT. The Time Brokerage Agreement shall be in
full force and effect and Sellers shall not be in material breach of their
obligations thereunder.
(g) RENEWAL OF FCC LICENSE. The FCC shall have granted the pending
renewal application for the FCC License for a term ending on April 1, 2007
without imposition of any materially adverse conditions that are applicable to
the operation of the Station following the Closing Date (except those generally
applied to television stations of the same class and character).
(h) DELIVERIES. Sellers shall have made or stand willing to make all
the deliveries to Buyer set forth in Section 8.2.
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS. All obligations of Sellers at the
Closing are subject at Sellers' option to the fulfillment prior to or at the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Buyer contained in this Agreement shall be true and complete at and as of the
Closing Date as though made at and as of that time, except for (i) any
inaccuracy that could not reasonably be expected to have a material adverse
effect on Buyer's ability to perform its obligations hereunder, (ii) any
representation or warranty that is expressly stated only as of a specified
earlier date, in which case such representation or warranty shall be true as of
such earlier date and (iii) changes in any representation or warranty that are
contemplated by this Agreement.
(b) COVENANTS AND CONDITIONS. Buyer shall have performed and complied
with in all material respects all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(c) DELIVERIES. Buyer shall have made or stand willing to make all the
deliveries set forth in Section 8.3.
(d) FCC CONSENT. The FCC Consent shall have been granted without the
imposition on Sellers of any conditions that need not be complied with by
Sellers under Section 6.1 hereof and Buyer shall have complied with any
conditions imposed on it by the FCC Consent.
(e) HSR ACT. The waiting period under the HSR Act shall have expired or
been terminated without any unresolved action by the DOJ or the FTC to prevent
the Closing.
(f) TIME BROKERAGE AGREEMENT. The Time Brokerage Agreement shall be in
full force and effect and Buyer shall not be in material breach of its
obligations thereunder.
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SECTION 8. CLOSING AND CLOSING DELIVERIES
8.1 CLOSING.
(a) CLOSING DATE. Subject to the satisfaction or, to the extent
permissible by law, waiver (by the party for whose benefit the Closing condition
is imposed) on the date scheduled for Closing, of the conditions precedent set
forth in Sections 7.1 and 7.2, as appropriate, the Closing shall take place at
10:00 a.m. on the third business day after the expiration of thirty (30) days
following the date the public notice of the grant of the FCC Consent is released
by the FCC; PROVIDED, HOWEVER, if any Petition to Deny is filed against the
Application in accordance with Section 73.3584 of the FCC's Rules or if any
informal objection is filed against the Application in accordance with Section
73.3587 of the FCC's Rules (collectively, a "Petition") and the Petition
contains one or more allegations that could reasonably be expected to result in
the denial or dismissal of the Application based on the Act or the FCC's rules,
regulations, decisions or published policies then in effect, or if any Petition
for Reconsideration or Application for Review is filed with respect to a grant
of the Application in accordance with Sections 1.101 ET SEQ. of the FCC's Rules
(collectively, an "Appeal") and the Appeal contains one or more allegations that
could reasonably be expected to result in the denial or dismissal of the
Application based on the Act or the FCC's rules, regulations, decisions or
published policies then in effect, the Closing shall take place at 10:00 a.m. on
a date, to be set by Sellers on at least five (5) business days' written notice
to Buyer, that is within ten (10) business days following the date the FCC
Consent shall have become a Final Order. Time is of the essence with respect to
this Agreement.
(b) CLOSING PLACE. The Closing shall be held at the offices of Dow,
Lohnes & Albertson, 1200 New Hampshire Avenue, N.W., Suite 800, Washington, D.C.
20036, or any other place that is agreed upon by Buyer and Sellers.
8.2 DELIVERIES BY SELLERS. Prior to or on the Closing Date, Sellers shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
(a) TRANSFER DOCUMENTS. Duly executed bills of sale, assignments, and
other transfer documents which shall be sufficient to vest good and marketable
title to the Assets in the name of Buyer, free and clear of all mortgages,
liens, restrictions, encumbrances, claims, and obligations, except for Permitted
Liens;
(b) CONSENTS. An executed copy of any instrument evidencing receipt of
any Material Consents and to the extent obtained, any other Consents;
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(c) OFFICER'S CERTIFICATE. A certificate, dated as of the Closing Date,
executed by Sellers, certifying compliance by Sellers with the conditions set
forth in Sections 7.1(a) and (b);
(d) RESOLUTIONS. Copies of appropriate resolutions of Sellers' boards
of directors authorizing this Agreement and the consummation of the transactions
contemplated hereby; and
(e) SERVICES AGREEMENT. The Services Agreement, duly executed by
Paxson-40.
8.3 DELIVERIES BY BUYER. Prior to or on the Closing Date, Buyer shall
deliver to Sellers the following, in form and substance reasonably satisfactory
to Sellers and their counsel:
(a) PURCHASE PRICE. The Purchase Price, as adjusted pursuant to Section
2.3(b) and (d);
(b) ASSUMPTION AGREEMENTS. Appropriate assumption agreements pursuant
to which Buyer shall assume and undertake to perform Sellers' obligations under
the Licenses and Assumed Contracts as provided in Section 2.5;
(c) OFFICER'S CERTIFICATE. A certificate, dated as of the Closing Date,
executed by Buyer, certifying compliance by Buyer with the conditions set forth
in Sections 7.2(a) and (b);
(d) RESOLUTIONS. Copies of appropriate resolutions of Buyer's board of
directors authorizing this Agreement and the consummation of the transactions
contemplated hereby; and
(e) SERVICES AGREEMENT. The Services Agreement, duly executed by Buyer.
SECTION 9. TERMINATION
9.1 TERMINATION BY SELLERS. This Agreement may be terminated by Sellers, if
Sellers are not then in material default, upon written notice to Buyer, upon the
occurrence of any of the following:
(a) CONDITIONS. If, on the date that would otherwise be the Closing
Date, Sellers shall have notified Buyer in writing that one or more of the
conditions precedent to the obligations of Sellers set forth in Section 7.2 of
this Agreement have not been satisfied by Buyer or waived in writing by Sellers
and such condition or conditions shall not have been satisfied by Buyer or
waived in writing by Sellers within twenty days following such notice.
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<PAGE> 35
(b) JUDGMENTS. If, on the date that would otherwise be the Closing
Date, there is in effect any judgment, decree, or order that would prevent or
make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by February 19,
2000.
(d) BREACH. If Buyer has failed to cure any material breach of any of
its representations, warranties or covenants under this Agreement within ten
(10) days after Buyer received written notice of such breach from Sellers.
(e) TIME BROKERAGE AGREEMENT. If Buyer fails to make any payment when
due pursuant to (and subject to the terms of) the Time Brokerage Agreement,
Buyer commits any act or omission that could reasonably be expected to have a
Material Adverse Effect or the Time Brokerage Agreement is terminated by Sellers
in accordance with Section 6.1(a)(ii) thereof.
9.2 TERMINATION BY BUYER. This Agreement may be terminated by Buyer, if
Buyer is not then in material default, upon written notice to Sellers, upon the
occurrence of any of the following:
(a) CONDITIONS. If, on the date that would otherwise be the Closing
Date, Buyer shall have notified Sellers in writing that one or more of the
conditions precedent to the obligations of Buyer set forth in Section 7.1 of
this Agreement have not been satisfied by Sellers or waived in writing by Buyer
and such condition or conditions shall not have been satisfied by Sellers or
waived in writing by Buyer within twenty days following such notice.
(b) JUDGMENTS. If, on the date that would otherwise be the Closing
Date, there is in effect any judgment, decree, or order that would prevent or
make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by February 19,
2000.
(d) BREACH. If Sellers have failed to cure any material breach of any
of their representations, warranties or covenants under this Agreement within
ten (10) days after Sellers received written notice of such breach from Buyer.
(e) TIME BROKERAGE AGREEMENT. If the Time Brokerage Agreement is
terminated by Buyer in accordance with Section 6.1(a)(ii) thereof.
(f) DUE DILIGENCE. If, on or prior to February 26, 1999, Buyer (i)
discovers any information regarding the ownership, condition or use of the
Assets that Buyer determines, in good faith and the exercise of commercially
reasonable business judgment, could have a Materially Adverse Effect and (ii)
provides written notice of termination pursuant to this Section
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9.2(f) to Sellers no later than 5:00 p.m., Eastern Time, on February 26, 1999,
which notice shall specify in reasonable detail the basis for such termination.
9.3 RIGHTS ON TERMINATION. If this Agreement is terminated pursuant to
Section 9.1 or Section 9.2 and neither party is in material breach of this
Agreement, the parties hereto shall not have any further liability to each other
with respect to the purchase and sale of the Assets. If this Agreement is
terminated by Sellers due to Buyer's material breach of this Agreement, Sellers
shall have all rights and remedies available at law or equity and the Deposit
(as defined below) and all interest and other proceeds earned thereon shall be
retained by the Escrow Agent and applied to pay such damages that are awarded to
Sellers by reason of Buyer's material breach of this Agreement. If this
Agreement is terminated by Buyer due to Sellers' material breach of this
Agreement, Buyer shall have all rights and remedies available at law or equity.
9.4 ESCROW DEPOSIT. Buyer has deposited with the Escrow Agent the sum of
One Million Dollars ($1,000,000) (the "Deposit"). All such funds deposited with
the Escrow Agent shall be held and disbursed in accordance with the terms of the
Escrow Agreement and the following provisions:
(a) At the Closing, all amounts held by the Escrow Agent pursuant to
the Escrow Agreement, including any interest or other proceeds from the
investment of funds held by the Escrow Agent, shall be disbursed to or at the
direction of Buyer.
(b) If this Agreement is terminated pursuant to Section 9.1 or 9.2 and
Buyer is not in material breach of this Agreement, all amounts held by the
Escrow Agent pursuant to the Escrow Agreement, including any interest or other
proceeds from the investment of funds held by the Escrow Agent, shall be
disbursed to or at the direction of Buyer.
(c) If this Agreement is terminated by Sellers pursuant to (i) Section
9.1(a), under such circumstances that any action taken or omitted by Buyer has
prevented any of the conditions set forth in Section 7.2 from being satisfied
and any such action taken or omitted by Buyer constitutes a material breach by
Buyer of its representations, warranties or covenants hereunder, (ii) 9.1(b),
under such circumstances that the judgment, decree or order set forth therein
results from any action taken or omitted by Buyer and any such action taken or
omitted by Buyer constitutes a material breach by Buyer of its representations,
warranties or covenants hereunder, (iii) Section 9.1(d) or (iv) Section 9.1(e),
then the Deposit and all interest and other proceeds earned thereon shall be
retained by the Escrow Agent and applied to pay such damages that are awarded to
Sellers by reason of Buyer's material breach of this Agreement.
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<PAGE> 37
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; CERTAIN
REMEDIES
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties contained in this Agreement shall be deemed continuing
representations and warranties and shall survive the Closing for a period of one
(1) year and any claim for a breach of a representation or warranty must be
brought prior to the expiration of such one-year period. Any claim for
indemnification in respect of a covenant or agreement of Buyer or Sellers
hereunder to be performed before the Closing shall be made prior to the date
which is one year from the Closing Date. The covenants and agreements in this
Agreement to be performed after the Closing shall survive the Closing until
fully performed.
10.2 INDEMNIFICATION BY SELLERS. Subject to Sections 10.1 and 10.4, Sellers
hereby agree to indemnify and hold Buyer harmless against and with respect to,
and shall reimburse Buyer for:
(a) Any and all losses, liabilities, or damages resulting from any
untrue representation, breach of warranty, or nonfulfillment of any covenant by
Sellers contained in this Agreement or in any certificate, document, or
instrument delivered to Buyer under this Agreement, except to the extent that
any untrue representation, breach of warranty or nonfulfillment of any covenant
results from any act or omission of Buyer or its agents.
(b) Any and all obligations of Sellers not assumed by Buyer pursuant to
this Agreement, including any liabilities arising at any time under any Contract
not included in the Assumed Contracts.
(c) Any and all losses, liabilities, or damages resulting from the
operation or ownership of the Station prior to the Closing, including any
liabilities arising under the Licenses or the Assumed Contracts which relate to
events occurring prior the Closing Date, except to the extent that any such
loss, liability or damage results from any act or omission of Buyer or its
agents.
(d) Any and all losses, liabilities or damages resulting from any claim
by Cuchifritos Communications, L.L.C. relating to Buyer's execution, delivery or
performance of this Agreement.
(e) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
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<PAGE> 38
10.3 INDEMNIFICATION BY BUYER. Subject to Sections 10.1 and 10.4, Buyer
hereby agrees to indemnify and hold Sellers harmless against and with respect
to, and shall reimburse Sellers for:
(a) Any and all losses, liabilities, or damages resulting from any
untrue representation, breach of warranty, or nonfulfillment of any covenant by
Buyer contained in this Agreement or in any certificate, document, or instrument
delivered to Sellers under this Agreement.
(b) Any and all obligations of Sellers assumed by Buyer pursuant to
this Agreement.
(c) Any and all losses, liabilities or damages resulting from or act or
omission of Buyer or its agent prior to the Closing or the operation or
ownership of the Station on and after the Closing.
(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
10.4 LIMITATIONS. No indemnification shall be required to be made by any
party hereto until the aggregate amount of all indemnification claims against
such indemnifying party exceeds One Hundred Thousand Dollars ($100,000);
PROVIDED that once such claims exceed One Hundred Thousand Dollars ($100,000),
such indemnifying party shall be required to indemnify the other party with
respect to all indemnifiable claims, including indemnifiable claims for the
initial One Hundred Thousand Dollars ($100,000). The previous limitation shall
not apply to the adjustments to the Purchase Price under Sections 2.3(b) and
(d). Notwithstanding anything to the contrary contained herein, in no event
shall Sellers' obligations for indemnification under this Agreement exceed in
the aggregate Five Million Dollars ($5,000,000), and Buyer hereby waives and
releases any recourse against Sellers for indemnification above Five Million
Dollars ($5,000,000). The indemnification provisions in this Section 10 sets
forth the exclusive remedies of the parties hereto following the Closing for a
breach of a representation, warranty or covenant under this Agreement or any
other claims relating to this Agreement.
10.5 PROCEDURE FOR INDEMNIFICATION. The procedure for indemnification shall
be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly
give notice to the party from which indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought by a
third party, specifying in reasonable detail the
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<PAGE> 39
factual basis for the claim. If the claim relates to an action, suit, or
proceeding filed by a third party against Claimant, such notice shall be given
by Claimant within five days after written notice of such action, suit, or
proceeding was given to Claimant.
(b) With respect to claims solely between the parties, following
receipt of notice from the Claimant of a claim, the Indemnifying Party shall
have thirty days to make such investigation of the claim as the Indemnifying
Party deems necessary or desirable. For the purposes of such investigation, the
Claimant agrees to make available to the Indemnifying Party and/or its
authorized representatives the information relied upon by the Claimant to
substantiate the claim. If the Claimant and the Indemnifying Party agree at or
prior to the expiration of the thirty-day period (or any mutually agreed upon
extension thereof) to the validity and amount of such claim, the Indemnifying
Party shall immediately pay to the Claimant the full amount of the claim. If the
Claimant and the Indemnifying Party do not agree within the thirty-day period
(or any mutually agreed upon extension thereof), the Claimant may seek
appropriate remedy at law or equity.
(c) With respect to any claim by a third party as to which the Claimant
is entitled to indemnification under this Agreement, the Indemnifying Party
shall have the right at its own expense, to participate in or assume control of
the defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any third
party claim, it shall be bound by the results obtained by the Claimant with
respect to such claim.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) The indemnification rights provided in Sections 10.2 and 10.3 shall
extend to the shareholders, directors, officers, members, employees, and
representatives of any Claimant although for the purpose of the procedures set
forth in this Section 10.5, any indemnification claims by such parties shall be
made by and through the Claimant.
10.6 SPECIFIC PERFORMANCE. The parties recognize that if Sellers or Buyer
breach this Agreement and refuse to perform under the provisions of this
Agreement, monetary damages alone would not be adequate to compensate the
non-breaching party for its injury. Sellers and Buyer shall therefore be
entitled to obtain specific performance of the terms of this Agreement.
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<PAGE> 40
If any action is brought by Sellers or Buyer to enforce this Agreement, the
other party shall waive the defense that there is an adequate remedy at law.
10.7 ATTORNEYS' FEES. In the event of a default by either party which
results in a lawsuit or other proceeding for any remedy available under this
Agreement, the prevailing party shall be entitled to reimbursement from the
other party of its reasonable legal fees and expenses hereof.
SECTION 11. MISCELLANEOUS
11.1 FEES AND EXPENSES. Buyer and Sellers shall each pay one-half of all
filing fees required by the FCC and required under the HSR Act. Except as
otherwise provided in this Agreement, each party shall pay its own expenses
incurred in connection with the authorization, preparation, execution, and
performance of this Agreement, including all fees and expenses of counsel,
accountants, agents, and representatives. Each party shall be responsible for
all fees or commissions payable to any finder, broker, advisor, or similar
person retained by or on behalf of such party.
11.2 NOTICES. All notices, demands, and requests required or permitted to
be given under the provisions of this Agreement shall be (a) in writing, (b)
delivered by personal delivery, or sent by commercial delivery service or
registered or certified mail, return receipt requested, (c) deemed to have been
given on the date of personal delivery or the date set forth in the records of
the delivery service or on the return receipt, and (d) addressed as follows:
If to Sellers: Paxson New York License, Inc.
Paxson Communications of New York-43, Inc.
601 Clearwater Park Road
West Palm Beach, FL 33401-6233
Attention: Mr. Lowell W. Paxson
With a copy to: John R. Feore, Jr., Esq.
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036-6802
If to Buyer: Shop at Home, Inc.
5388 Hickory Hollow Parkway
Antioch, TN 37013
Attention: Mr. Kent E. Lillie
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<PAGE> 41
With a copy to: George Phillips, Esq.
Shop at Home, Inc.
5388 Hickory Hollow Parkway
Antioch, TN 37013
or to any other or additional persons and addresses as the parties may from time
to time designate in a writing delivered in accordance with this Section 11.2.
11.3 BENEFIT AND BINDING EFFECT. Neither party hereto may assign this
Agreement without the prior written consent of the other party hereto; PROVIDED,
HOWEVER, that Sellers may assign some or all of their rights hereunder (but not
their obligations) to an escrow agent or other person or entity serving as an
Intermediary under the Code; Buyer may assign its rights and interests hereunder
to a wholly-owned subsidiary of Buyer so long as any such assignment or sale of
ownership interests shall not constitute a change in control under applicable
rules and decisions of the FCC and shall not otherwise delay the grant of the
Application. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
11.4 FURTHER ASSURANCES. The parties shall take any actions and execute any
other documents that may be necessary or desirable to the implementation and
consummation of this Agreement, including, in the case of Sellers, any
additional bills of sale, deeds, or other transfer documents that, in the
reasonable opinion of Buyer, may be necessary to ensure, complete, and evidence
the full and effective transfer of the Assets to Buyer pursuant to this
Agreement.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CHOICE OF LAW PROVISIONS THEREOF).
11.6 HEADINGS. The headings in this Agreement are included for ease of
reference only and shall not control or affect the meaning or construction of
the provisions of this Agreement.
11.7 GENDER AND NUMBER. Words used in this Agreement, regardless of the
gender and number specifically used, shall be deemed and construed to include
any other gender, masculine, feminine, or neuter, and any other number, singular
or plural, as the context requires.
11.8 ENTIRE AGREEMENT. This Agreement, the schedules, hereto, and all
documents, certificates, and other documents to be delivered by the parties
pursuant hereto, collectively represent the entire understanding and agreement
between Buyer and Sellers with respect to the subject matter hereof. This
Agreement supersedes all prior negotiations between the parties including,
without limitation, the letter of intent dated January 22, 1999, and cannot be
amended,
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<PAGE> 42
supplemented, or changed except by an agreement in writing that makes specific
reference to this Agreement and which is signed by the party against which
enforcement of any such amendment, supplement, or modification is sought.
11.9 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement, or condition herein may be waived
by the party entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, representation, warranty, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 11.9.
11.10 PRESS RELEASE. Prior to the Closing, neither party shall publish any
press release, make any other public announcement or otherwise communicate with
any news media concerning this Agreement or the transactions contemplated hereby
without the prior written consent of the other party; PROVIDED, HOWEVER, that
nothing contained herein shall prevent either party from promptly making all
filings with governmental authorities or securities exchanges as may, in its
judgement be required or advisable in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby or
by law or the rules and regulations of any securities exchange.
11.11 LIKE-KIND EXCHANGE. Sellers may assign some or all of their rights
(but not their obligations) under this Agreement to an escrow agent or other
person or entity serving as an Intermediary under United States Treasury
Regulations promulgated under Section 1031 of the Code; provided that (i) such
assignment shall not deprive Buyer of its rights or benefits, or relieve Sellers
of any obligations or liabilities, under this Agreement, (ii) Buyer shall not be
obligated to incur any expense or other obligations or liabilities in connection
therewith, and (iii) such assignment shall not delay the Closing. Sellers intend
for such exchange to constitute a like-kind exchange pursuant to Section 1031 of
the Code. However, nothing in this Agreement shall be construed as a
representation or warranty of any party to any other party as to the tax
characterization of the transaction.
11.12 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the District of Connecticut and the Superior Court of the State of Connecticut,
Fairfield Judicial District, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties hereto agrees, to the extent permitted under applicable
rules of procedure, to commence any action, suit or proceeding relating hereto
either in the United States District Court for the District of Connecticut, or
if such suit, action or other proceeding may not
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<PAGE> 43
be brought in such court for jurisdictional reasons, in the Superior Court of
the State of Connecticut, Fairfield Judicial District. Each of the parties
hereto further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth above shall
be effective service of process for any action, suit or proceeding in
Connecticut with respect to any matters to which it has submitted to
jurisdiction in this Section 11.12. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Superior Court of the State of Connecticut, Fairfield Judicial
District, or (ii) the United States District Court for the District of
Connecticut, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient form.
11.13 BULK TRANSFER LAWS. Notwithstanding any other provision of this
Agreement, Buyer hereby waives compliance by Sellers with the provisions of any
so-called Bulk Transfer Law of any jurisdiction in connection with the
transactions contemplated hereby. Sellers shall indemnify and hold harmless
Buyer against any and all liabilities which may be asserted by third parties
against Buyer as a result of noncompliance with any such Bulk Transfer Law,
other than liabilities which Buyer shall have expressly assumed pursuant to this
Agreement.
11.14 GUARANTY.
(a) PCC irrevocably guarantees (the "Guaranty"), as principal and not
as surety, to Buyer, the full and prompt performance by Sellers of all of their
obligations under Section 10.2 of this Agreement, subject, however, to the
limitations and requirements set forth in Section 10.1, 10.4 and 10.5 hereof.
Subject to such limitations and requirements, the Guaranty shall apply and
survive until all obligations of Seller(s) under Section 10.2 of this Agreement
are performed and satisfied in accordance with the terms hereof and thereof.
(b) PCC hereby represents and warrants to Buyer as follows: (i) PCC is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to execute, deliver and perform this Guaranty according to its terms;
(ii) the execution, delivery and performance of this Guaranty and the
consummation of the transactions contemplated hereby by PCC have been duly
authorized by all necessary corporate action on the part of PCC; (iii) this
Guaranty has been duly executed and delivered by PCC and constitutes the legal,
valid and binding obligation of PCC enforceable against PCC in accordance with
its terms, except as the enforceability of this Guaranty may be affected by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by judicial discretion in the enforcement of equitable remedies; and (iv) the
execution, delivery and performance of this Guaranty: (1) do not require the
consent of any third party, (2) do not conflict with the Certificate of
Incorporation or bylaws of PCC, and (3) do not
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<PAGE> 44
conflict in any material respect with, result in a material breach of, or
constitute a material default under any law, judgment, order, ordinance,
injunction, decree, rule, regulation or ruling of any court or governmental
authority applicable to PCC or any material contract or agreement to which PCC
is a party or by which PCC may be bound.
11.15 COUNTERPARTS. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the day and year first above written.
PAXSON COMMUNICATIONS OF
NEW YORK-43, INC.
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
PAXSON NEW YORK LICENSE, INC.
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
------------------------------
Name: Kent E. Lillie
Title: President & Chief Executive Officer
PAXSON COMMUNICATIONS CORPORATION JOINS IN
THE EXECUTION OF THIS ASSET PURCHASE
AGREEMENT SOLELY FOR THE PURPOSE OF ITS
AGREEMENT SET FORTH IN SECTION 11.14.
PAXSON COMMUNICATIONS CORPORATION
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
-39-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810029
<NAME> SHOP AT HOME,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-1-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,821
<SECURITIES> 0
<RECEIVABLES> 9,876
<ALLOWANCES> 453
<INVENTORY> 5,765
<CURRENT-ASSETS> 26,389
<PP&E> 30,502
<DEPRECIATION> 2,580
<TOTAL-ASSETS> 146,436
<CURRENT-LIABILITIES> 23,904
<BONDS> 75,000
<COMMON> 61
1,075
0
<OTHER-SE> 52,610
<TOTAL-LIABILITY-AND-EQUITY> 146,436
<SALES> 110,442
<TOTAL-REVENUES> 110,442
<CGS> 65,869
<TOTAL-COSTS> 108,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,590
<INCOME-PRETAX> (3,802)
<INCOME-TAX> (1,445)
<INCOME-CONTINUING> (2,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,357)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
